New | China’s Evergrande needs to make better use of money, analysts say
Evergrande’s record HK$12.5 bln acquisition of a HK office tower is a trade of price for better payment terms
Cash is so important to debt-ridden mainland Chinese developer Evergrande Real Estate Group that it traded record price for better payment terms in the recent purchase of a Hong Kong office tower, industry analysts said.
But investors refused to buy the idea and its shares plunged 8.9 per cent at one point on Friday, after it announced the previous day it would pay HK$12.5 billion for the 26-storey MassMutual Tower in Wan Chai in Hong Kong’s most expensive office transaction on record.
Evergrande took pride in the payment of “only a small amount” in each of the next six years, as only 40 per cent will be due upon completion of the deal, which the developer hopes will lift its corporate image in the city as well as other parts of the world.
Evergrande has been pictured by some global investors since its public listing in 2009 as too aggressive in its debt-fuelled expansion.
“Evergrande stands out with its high efficiency in raising cheap onshore bonds; in turn improving its debt cost. Robust sales also support its stock. But the MassMutual Tower acquisition may be too aggressive,” said Jefferies property analyst Venant Chiang.
JP Morgan property analyst Ryan Li said Evergrande probably views the asset as a property in scarcity and that they do not mind paying a substantial premium for better payment terms as the management’s primary focus is on cash flow.
The Guangzhou-based developer declared “cash is king” in its interim report, which showed cash on hand totalled 81.57 billion yuan as of the end of June, the highest level since its listing in Hong Kong.
