China urges government-backed companies to take over Evergrande assets

By Clare Jim and Jing Xu

HONG KONG (Reuters) – Beijing is pushing state-owned firms and government-backed real estate developers like China Vanke Co Ltd to buy some of the assets of the highly competitive China Evergrande Group, said those in the know.

Evergrande, riddled with $ 305 billion in debt, is on the verge of collapse. However, according to six people, including four in government and regulatory agencies, the central government is unlikely to intervene directly to resolve Evergrande’s crisis in the form of a bailout.

However, authorities hope the asset purchase will ward off, or at least mitigate, social unrest that could arise if Evergrande suffered a chaotic collapse, they said, declining to be identified due to the sensitivity of the matter.

A handful of state-owned companies have already carried out asset due diligence in the southern Chinese city of Guangzhou, one person said.

In one emblematic example, Guangzhou City Construction Investment Group is about to acquire Evergrande’s Guangzhou FC Football Stadium and surrounding housing projects, according to the person with direct knowledge of the matter.

The stadium, which is expected to cost around 12 billion yuan ($ 1.9 billion), was designed to seat more than 100,000 people, making it the world’s largest soccer venue by capacity.

Potential buyers of Evergrande’s nuclear facilities in Guangzhou have been “arranged” with “both political and commercial considerations,” the person said, adding that authorities do not want to see few companies bid for the same assets.

Evergrande and Guangzhou City Construction Investment Group did not immediately respond to requests for comment. The state’s wealth inspection agency, the State Asset Inspectorate and Administrative Commission (SASAC), did not immediately respond to requests for comments either.

Vanke and China Jinmao Holdings are among the government-backed real estate developers asked to buy Evergrande assets, sources said. China Resources Land was also interviewed, a source said.

Real estate developers and state-owned firms have been explored, either directly or indirectly, through asset purchases, the sources said. Reuters was unable to immediately ascertain the current status of most of these conversations.

Vanke, one-third of which is owned by the Shenzhen state-run subway operator, said in August that he had spoken to Evergrande about collaborating on various projects. On Tuesday, she did not respond to a request for an opinion on the status of these talks. Jinmao and China Resources Land also did not respond to requests for comment.

Evergrande missed paying $ 83.5 million in interest to offshore bondholders last week and is due for a coupon payment of $ 47.5 million on Wednesday.

While expectations are high that it will go through one of the biggest restructurings in China of all time, government agencies have been largely silent about the potential of a bailout or how to deal with a collapse.

However, Beijing has worked to contain any ricochet from Evergrande’s problems on the financial system.

One of the first signs of an official investigation into the real estate giant came this week when the Shenzhen government’s financial regulator announced that an investigation was open -management -arm-faces-local-government-inquiry-2021-09-27 in an asset management unit of Evergrande.

One person with direct knowledge of local government involvement said local governments have been asked to mediate with government-sponsored groups and companies so they can participate in the reorganization and sale of Evergrande’s assets.

Any action taken by local governments depends on the extent of Evergrande’s presence in those areas and the local finances of that particular province or city, the sources say.

They added that regulators will first assess the funding position of all Evergrande companies before taking any action on liquidity.

“What type of committee should be set up is a second story; it depends on the debt situation,” a regulatory source said.

(Reporting by Clare Jim in Hong Kong and Jing Xu in Beijing; Additional reporting by Cheng Leng and Yingzhi Yang in Beijing; Editing by Sumeet Chatterjee and Edwina Gibbs)

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