Exclusive: Chinese authorities ask Ping An to acquire controlling stake in Country Garden

Nov 8 (Reuters) – Chinese authorities have asked Ping An Insurance Group to acquire a controlling stake in Country Garden (2007.HK), the country’s largest private real estate developer, four people familiar with the plan said.

China’s State Council, headed by Premier Li Qiang, has instructed the local government in Guangdong province, where the two companies are based, to help arrange the rescue of Country Garden by Ping An, two of the sources with direct knowledge of the matter said. Theme.

A spokesman for Ping An (601318.SS) said the government had not contacted the company and denied the information reported by Reuters.

The company said in a statement to Reuters that Ping An “was not asked by the government to acquire Country Garden. We categorically deny this story. It is not true.”

The insurer, which competes with China Life (601628.SS) for the title of the country’s largest insurance group by market capitalization, declined to give its founder and chairman, Ma Mingzhe, the opportunity for an interview. Ma, who also uses the English first name Peter, did not respond to an email request from Reuters for comment.

The State Council Information Office and the Guangdong local government did not respond to requests for comment. Country Garden declined to comment.

Ping An shares, listed in Hong Kong, closed down 5.4% in heavy trading, wiping about $2.1 billion from its market value. Country Garden shares rose 12.2%, valuing the company at about $3 billion, and shares of other Chinese developers also jumped.

The rescue of the Country Garden by Ping An would be one of the most significant interventions yet by authorities to support the financially stressed and debt-laden property sector, which accounts for a quarter of China’s economic activity and has raised fears of a wider financial crisis.

“If this is true, it will have a very significant positive impact on the property and capital markets,” said Xu Tianxin, chief economist at the Economist Intelligence Unit.

“Only equity infusions, such as corporate takeovers or nationalizations, are likely to change homebuyers’ and investors’ confidence and materially change the situation.”

Risk mitigation

Three of the sources said authorities were keen that any risks posed by Country Garden’s liquidity problems would not spill over into the wider economy.

While companies in China can rarely ignore a request from the central government, the three sources said Ping An has been asked to provide details of the plan and would have room to negotiate the terms of any deal.

Two of them said that talks between the authorities and Ping An’s core leaders began in late August and were still at an early stage.

Two sources also said that Ping An had been asked to conduct due diligence on Country Garden, adding that authorities recognized that the insurer was a listed company accountable to shareholders.

A fifth person familiar with the matter said some talks between Ping An and the local Guangdong government about saving the Country Garden took place in September.

All sources requested to reveal their identities due to the sensitivity of the matter.

Two sources said the discussions between Ping An and the authorities were led by officials at the Financial Markets Department of the People’s Bank of China, the central bank, and included Country Garden.

They added that the National Financial Regulatory Administration (NFRA) is also participating in the talks.

Neither the People’s Bank of China nor the NFRA responded to Reuters’ requests for comment.

Authorities want Ping An to take a stake of more than 50%, according to one person with direct knowledge and a person familiar with the plan.

Country Garden’s largest shareholder with a stake of about 52% is Yang Huiyan, chairman and daughter of one of the founders. Reuters was unable to reach Yang for comment.

If Ping An becomes the controlling shareholder in Country Garden, authorities want to inject capital in phases to ease the developer’s liquidity problems, according to four sources.

Last month, the real estate development company missed the deadline to pay a $15 million coupon, and the market considered it in default on its foreign bonds, which total about $11 billion.

Country Garden said it expects it will be unable to meet all of its external debt obligations and hopes to seek a “comprehensive” solution to its difficulties.

Two of the sources also said Chinese authorities are keen to make the proposed takeover a potential model for other developers in financial trouble.

Guangdong solution

Three sources said the authorities were keen to solve Country Garden’s liquidity problems within Guangdong. Ping An was a natural choice because he is based in Guangdong and was one of Country Garden’s major shareholders, according to two of the sources.

Ping An said after the Reuters report that it no longer owns Country Garden shares. It held a 4.99% stake as of August 11, according to Hong Kong Stock Exchange data.

The state takeover of a company by another company is not considered a precedent in China. But there has been nothing like this in the real estate sector since Beijing announced measures in 2020 to address the industry’s sky-high debt levels, leading to a liquidity crisis.

Although several other Chinese real estate developers, including giant China Evergrande (3333.HK), have defaulted on their debts, policy steps have mostly focused on lowering mortgage interest rates and relaxing rules so that it will be easier for people to… Buying houses.

But in a sign that government authorities are ready to play a bigger role, the largest shareholder in state-owned China Vanke (000002.SZ) Shenzhen Metro It said on Monday it had prepared 10 billion yuan ($1.4 billion) worth of “market tools” to support the country’s No. 2 developer.

Country Garden’s liabilities totaled 1.4 trillion yuan ($190 billion) at the end of June. It has more than 3,000 projects in development nationwide.

Ping An has been tapped by authorities as a savior for a struggling company before.

She participated in state-directed aid to the Peking University Founders’ Group in 2021 and 2022. Its main unit, Ping An Life, was part of a consortium involved in the group’s debt restructuring and the unit subsequently acquired 67% ownership of the reorganized company. .

($1 = 7.2846 Chinese yuan)

($1 = 7.8158 Hong Kong dollars)

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