Evergrande’s shares rise on capital injection

Shares of Guangzhoubased property conglomerate China Evergrande Group gained 2.48 percent to end at HK$4.95 (64 cents) on Tuesday, after announcing a day earlier that its subsidiary Hengda Real Estate has secured a 30-billion-yuan ($4.3 billion) investment from eight investors.

According to an official statement from the company, Hengda Real Estate signed an agreement on Dec 30 with the investors who will make the investment in exchange for 13.16 percent of the company shares after the capital increase.

“The capital injection will serve to raise funds as well as to allow the group to maintain the public float of Shenzhen Real Estate upon completion of the proposed reorganization,” Evergrande said in a statement on Monday.

Earlier in October, the group announced that it signed an agreement with the Shenzhen government’s Shenzhen Real Estate, which would buy 100 percent of the Evergrande-owned Guangzhou Kailong Real Estate’s equity interest in Hengda Real Estate, as part of the group’s efforts to secure a higher valuation through a backdoor listing.

The investment is believed to raise Evergrande’s valuation to nearly 228 billion yuan, surpassing property giant Vanke.

The investors include CITIC Juheng (Shenzhen) Investment Holdings LLP, Guangtian Investment Co Ltd and Shenzhen Huajian Holdings Co Ltd. The three will each invest 5 billion yuan, taking up 2.19 percent each of the company’s enlarged capital.

The other five investors, Shenzhen Zhongrong Dingxing Investment LLP, Shandong Highway Companies, Suzhou Industrial Park Ruican Investment LLP, Shenzhen Meitou High-tech Venture Capital Investment Co Ltd and Guangdong Weimei Mingzhu Investment Co Ltd, will pour 3 billion yuan each into the company for 1.32 percent stakes each.

After the injection, the holding of Hengda Real Estate’s shareholder, Guangzhou Kailong Real Estate, will be reduced from 100 percent to 86.84 percent.

According to the agreement, Hengda promises to post no less than 24.3 billion yuan, 30.8 billion yuan and 33.7 billion yuan in profits in the coming three years. And, at least 60 percent of its net profits will be distributed to its shareholders each year.

“The 30 billion yuan strategic investment into Hengda Real Estate is the biggest over recent years, far exceeding the 12 billion yuan bottom line,” said a security analyst who declined to be identified.

“This shows that investors are still optimistic about large scale and brandname real estate enterprises. For Hengda Real Estate itself, the move will raise the company’s net assets and lower its net gearing, providing space for its future development.”

2.48 percent the increase in China Evergrande Group’s shares on Tuesday