Oct 22, 2018 (China Knowledge) - China's 2nd ranked property developer by sales, China Evergrande Group is in talks with financial institutions to raise USD 1.5 billion this month by offering its Hong Kong office tower as collateral. The move by the highly leveraged company points towards China's slowing property sector and capital controls in the country, which have reduced its ability to repay its offshore debt which stood at USD 16.4 billion, by the end of June.
The move also highlights the potential impact of the government's proposed ban on pre-sales in the property sector. The pre-sale plan has been the cornerstone of the high-leverage and rapid sales approach taken by mainland developers and a ban on it has been highly protested.
Evergrande which bought the office tower located in Wan Chai for USD 1.6 billion in 2015 has yet to fully settle the transaction. The money raised this time will be channeled towards paying back offshore debt and dividend payments. Evergrande has agreed to complete payment for the office tower within six years of the sale.
China Evergrande is looking to reduce its net gearing ratio to 70% by June 2020 through repayment of high-interest debt and reducing land purchases. The company’s net gearing ratio stood at 127% at the end of June, down from 184% in 2017, after it netted record profits due to a boom in China’s property market.
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