Nov 8 (Reuters) – Chinese authorities have asked Ping An Insurance Group to acquire a controlling stake in troubled Country Garden ( 2007.HK ), the country’s biggest private property developer, four people familiar with the plan said.
China’s State Council, which is headed by Premier Li Qiang, has instructed the local government of Guangdong province, where both companies are based, to help arrange the rescue of Country Garden from Ping An, two of the sources with direct knowledge said. for matter.
A spokesman for Ping An ( 601318.SS ) said the company had not been approached by the government and denied the information reported by Reuters.
Ping An “was not asked by (the government) to take over Country Garden. We categorically deny this story. It is false,” the company said in a statement.
The insurer, which rivals China Life ( 601628.SS ) for the title of the country’s biggest insurance group by market value, declined to make its founder and chairman Ma Mingje available for an interview. Ma, who also goes by the English name Peter, did not respond to an emailed Reuters request for comment.
China’s State Council Information Office and Guangdong’s local government did not respond to requests for comment. Country Garden declined to comment.
Shares of Hong Kong-listed Ping An extended losses after the Reuters report, trading down 5.7 percent, their lowest level in a year. Shares in Country Garden were up 4% in afternoon trading.
A state-engineered rescue of Country Garden by Ping An would be one of the most significant interventions yet by the authorities to support the beleaguered and heavily indebted property sector, which accounts for a quarter of China’s economic activity and has sparked fears of a wider financial crisis.
Authorities are keen to ensure that any risks posed by Country Garden’s liquidity problems do not spread to the wider economy, three of the sources said.
While in China companies can rarely ignore a request from the central government, the three sources said Ping An had been asked to provide details of the plan and would have leeway to negotiate the terms of any deal.
Talks between authorities and key Ping An leaders began in late August and are still at an early stage, two of the people said.
Ping An has been asked to carry out due diligence on Country Garden, two more sources said, adding that the authorities understood 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 Country Garden took place in September.
All the sources declined to be identified because of the sensitivity of the matter.
Discussions between Ping An and the authorities are being led by officials in the financial markets division of the People’s Bank of China (PBOC), the central bank, and include Country Garden, two of the sources said.
The National Financial Regulatory Authority (NFRA) is also involved in the talks, they added.
Neither the PBOC nor the NFRA responded to Reuters requests for comment.
Authorities want Ping An to take a stake of more than 50 percent, according to one person with direct knowledge and one person briefed on the plan.
Country Garden’s largest shareholder with a stake of about 52% is Yang Huiyan, chairman and daughter of a co-founder. Reuters was unable to reach Yang for comment.
If Ping An becomes a controlling shareholder in Country Garden, authorities would want it to inject capital in stages to ease the developer’s liquidity problems, according to four sources.
The real estate developer last month missed a deadline for a $15 million coupon payment and the market considered it a default on its offshore bonds, which total about $11 billion.
Country Garden said it expects to be unable to meet all of its offshore debt obligations and hopes to seek a “holistic” solution to its difficulties.
Chinese authorities are ready to make the proposed takeover a possible template for other financially strapped developers, two more of the sources said.
GUANGDONG DECISION
Authorities are looking to have Country Garden’s liquidity problems resolved in Guangdong, three of the sources said. Ping An was a natural choice because it is based in Guangdong and was a major shareholder in Country Garden, according to two of the sources.
As of Aug. 11, the insurer owned a 4.99 percent stake in Country Garden, according to Hong Kong stock exchange filings. Reuters could not determine whether Ping An currently owns shares in Country Garden.
The state-organized acquisition of one company by another is not without precedent in China. But there hasn’t been one in the property sector since Beijing outlined measures in 2020 to tackle the industry’s very high debt levels, which triggered a liquidity crunch.
While many other Chinese property developers, including giant China Evergrande ( 3333.HK ), have defaulted, policy moves have focused mostly on lowering mortgage rates and easing rules to make it easier for people to buy homes.
But in a sign that government authorities are ready to play a bigger role, China Vanke’s ( 000002.SZ ) major shareholder, state-owned Shenzhen Metro, said on Monday it had prepared “market instruments” worth 10 billion yuan (1.4 billion dollars) to support the #2 developer in the country.
Country Garden had total liabilities of 1.4 trillion yuan ($190 billion) at the end of June. There are more than 3,000 projects under development across the country.
Ping An has been tapped by authorities as a savior of an ailing company before.
It participated in a state-led bailout of Peking University Founder 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 then took a 67% ownership of the reorganized company.
($1 = 7.2846 Chinese Yuan)
Reports by Reuters staff; Edited by Anne Marie Roantry, Antony Slodkowski, Don Durfee and Edwina Gibbs
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