房地產

Lex_Evergrande: Vanke very much

Traders frequently lament the failed punt that becomes a long-term investment. China Evergrande might, then, be celebrating. The property developer turned conglomerate has made a great trade in China Vanke, its developer peer. The latter’s shares have been on a tear since early August when Evergrande revealed its interest. On Tuesday after Evergrande said it had lifted its stake to nearly 7 per cent, Vanke’s mainland-listed A shares rose a further tenth — the daily limit in Shanghai. On the first tranche alone, Evergrande has paper gains of $700m. Despite this success the deal smacks of poor governance.

Evergrande says that its holding is purely an investment. But the company hardly has the spare cash to be pumping more than $2bn into a minority stake in a competitor. Its net debt of $29bn is almost 10 times earnings before interest, tax, depreciation and amortisation; that ebitda barely covers interest payments (which the company capitalises). S&P Global Ratings has said that should these metrics deteriorate, it may downgrade Evergrande’s B- debt rating, worsening its financing options.

Evergrande’s allegiance is also unclear. Vanke is in the midst of a battle for control between major shareholder Baoneng, the insurance group, and Vanke’s management. The latter is backed by second-largest shareholder and unlisted state-owned enterprise, China Resources Holdings. In March, Vanke announced an asset purchase for shares that would install a new major shareholder, Shenzhen Metro, which is also supportive of management. That deal has yet to go ahead.

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