Evergrande Billionaire’s Supporters Rewarded for Buying Low
Evergrande Billionaire’s Supporters Rewarded for Buying Low
(Bloomberg) -- Doubling down on China Evergrande Group is proving a lucrative strategy for some of the embattled property giant’s most loyal backers.
As bonds of billionaire Hui Ka Yan’s developer tumbled last week on concerns over its $120 billion debt pile, several existing investors and business associates stepped in to buy.
Among them was an investment company part owned by Cheung Chung Kiu, a real estate tycoon known for being one of Hui’s poker buddies. Lombard Odier, which has invested in Evergrande’s offshore debt since 2017, and two Hong Kong property developers -- Asia Standard International Group Ltd. and Asia Standard Hotel Group Ltd. -- also added to their holdings.
Those bets got a boost this week after a group of strategic investors agreed to waive a repayment deadline that threatened to trigger a liquidity crisis for Evergrande. One of those pictured along with Hui during the agreement’s signing ceremony was Zhang Jindong of electronics-store operator Suning Appliance Group, which has done business with Evergrande since 2017 and earlier this month signaled it might exit the investment. A Suning representative didn’t respond to a request for comment.
As Hui tries to prevent a crisis of confidence among Evergrande’s creditors, he’s finding out how much he can rely on his fellow tycoons and other allies. Reports on Sept. 24 that the company had warned China’s officials of a potential liquidity squeeze and cascade of defaults sent jitters through markets, even though the developer later said the rumors and documents were “fabricated” and its operations were “stable and healthy.”
“Under the current situation, it is expected that many of its strategic partners, including those Hong Kong tycoons, will be helping it out,” said Maggie Hu, an assistant professor of finance and real estate at the Chinese University of Hong Kong. “Market risk or policy changes in the mainland that resulted in Evergrande’s current liquidity crisis may not be a problem for the Hong Kong tycoons.”
Evergrande’s offshore bonds due in 2024, which tumbled to around 79 cents on the dollar on Sept. 25, have since rebounded to 88 cents, according to prices compiled by Bloomberg. Shares in Hong Kong have rallied 43% from a low on Friday for the best three-day performance on record. Hui, who by the end of last week had lost $8.3 billion of his fortune for the year, regained almost all of that and is now worth about $30 billion, according to the Bloomberg Billionaires Index.
After markets closed in Hong Kong on Wednesday, companies including Asia Standard International disclosed buying $39 million of Evergrande bonds on Monday, adding to about $29 million of purchases at the end of last week.
Worries about debt troubles at Hui’s real estate empire have long circulated in China, yet the flamboyant billionaire -- known for his fondness of Hermes belts and owning a soccer team -- has managed to sustain support from his fellow business moguls time and again.
Even before the latest scare, Hui’s partners were there for him: In August, the developer sold a property-management unit for HK$23.5 billion ($3 billion) to a consortium that involved the wife and brother of Chinese Estates Holdings Ltd.’s Joseph Lau, as well as entities linked to the Chengs of New World Development Co. and C C Land Holdings Ltd.’s Cheung.
It’s not uncommon for Chinese billionaires to tap family and friends for funding. Some of Hui’s closest allies are from a group with whom he shares a fondness for a Chinese poker game. Known as the Big Two Club for the game’s name, the clan includes Lau and his wife, Chan Hoi Wan, New World’s Henry Cheng and Cheung. They have done numerous transactions over the years and are so interconnected that any default by Evergrande would have repercussions for their businesses.
“Given shared interests and prior cross investments, the Big Two Club has little choice but to continue their mutual support,” said Brock Silvers, former chief investment officer of Adamas Asset Management and a long-term private equity investor in China.
Evergrande was quick to point out last week that it hasn’t missed an interest or principal payment since its founding 24 years ago. Hu, the assistant professor at Chinese University of Hong Kong, said the odds of default are low despite the company’s short-term liquidity challenges. “Evergrande’s long-term financial situation is still sound,” she said.
Perhaps the best placed to help Hui among his Hong Kong friends would be Cheng, whose Chow Tai Fook Jewellery Group Ltd. has held up despite Covid-19 and Hong Kong’s anti-government protests. His wealth has risen by $3 billion this year to $20 billion.
But it’s the Laus that have the most at stake. The Hong Kong mogul first bought Evergrande shares when the company listed in 2009, with his family and associated entities later investing billions in 2017 as the stock soared. Now Evergrande accounts for almost 44% of Chinese Estates’ assets, according to its semi-annual report. Lau’s fortune has remained stable this year at $7.9 billion.
At the same time, some investors have started cashing out. Lifestyle International Holdings Ltd., which bought some of Evergrande’s notes in April, had already sold a portion by June, booking profits. As of Monday, Cinda International Holdings Ltd. had sold $2.9 million in combined principal of Evergrande’s dollar bonds.
But the developer also owns land and properties, and could always sell them to raise cash, according to Patrick Wong, a senior analyst at Bloomberg Intelligence. Hui’s poker club friends might be interested buyers -- and may actually prefer that option, rather than acquiring more bonds, he said.
“It’s good for Evergrande that Hong Kong tycoons are relatively more resilient, because now they can work out how to help,” Wong said. “If anything, they may be looking for bargains and opportunities for a good deal as a result of the tough times. They’re normally well prepared for a perfect storm. That’s how they get rich.”
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