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Chinese developer Evergrande engineers back-door listing on domestic stock market

Mainland property giant China Evergrande Group plans to engineer a back-door listing on the A-share market, aiming to inject most of its real estate assets and other non-property businesses into a listed vehicle that would have a market value of nearly 230 billion yuan, according to a document for investors.

According to a document, obtained by the South China Morning Post, Evergrande, controlled by Hui Ka-yan, the mainland’s ninth-richest man with personal net worth of US$9.6 billion, is seeking a capital injection of 30 billion yuan from strategic investors before conducting the reverse merger deal.

Evergrande will take control of Shenzhen Special Economic Zone Real Estate Properties while injecting most of its property assets and other businesses encompassing finance, health, tourism, culture and football into the firm, according to the document.

China Citic Bank which is advising on the fundraising, said that the valuation of the A-share firm would hit 228 billion yuan after the back-door listing.

By the end of June 2016, Evergrande had 167 million square metres of land reserved for development, spread across 174 cities nationwide, the document showed.

Evergrande’s plan to go public on the mainland’s market came after authorities stepped up a clampdown on the overheated home market with a series of austerity measures including restrictions on home purchases and heightened mortgage down-payment rates.

The Guangzhou-based developer’s lofty debt level – US$57 billion, which represents six times its market value – is also seen as a stumbling block to its further expansion.

China’s securities regulator is now taking a harsh stance on asset restructuring deals by listed companies, battered by fears that the deals could irrationally inflate the value of public firms, which could eventually lead to a boom-to-bust scenario.

A stock market rout last year also prompted the regulator to control the pace of initial public offerings to shore up investor confidence.

The regulator has yet to publicly comment on Evergrande’s back-door listing plan.

“Despite the curbs on the property sector, it won’t be wrong to build more homes affordable to the masses of Chinese people,” said Ye Lang Capital chairman Wang Feng. “As one of the country’s top developers, Evergrande certainly aims to be listed on the domestic market to chase long-term development.”

Evergrande, which is also listed in Hong Kong, aims to complete the restructuring and listing processes by the end of April 2017.

“It’s reasonable for overseas-listed Chinese companies to secure an A-share listing status because the higher valuations here makes it easy for them to raise additional funds,” said Huaxi Securities analyst Wei Wei.

“Given its size in the country’s property sector, Evergrande has reasons to chase a lofty market capitalisation.”

The higher valuation of the China stock market has attracted a clutch of mainland firms whose shares are traded abroad, including technology firms listed in New York.

Evergrande’s A-share company will be worth 3.7 times its current Hong Kong-listed firm based on the value of 228 billion yuan.