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Party on, Hui

4 May 2021 By Yawen Chen

Investment banks are sitting pretty as Evergrande’s roller-coaster ride trundles on. The embattled Chinese developer paid its five favourite intermediaries, including Credit Suisse and UBS, a total of $275 million in fees between 2016 and 2020, Dealogic data show, mostly as it borrowed heavily to refinance debt and buy land. As a result, the company became the fourth most lucrative investment-banking client in Asia, excluding Japan. Now its rush to cut debt by spinning off assets will enable them to rake in more money.

Evergrande was growing rapidly until a letter leaked last year revealed liquidity concerns. Chairman Hui Ka Yan and several rivals were then ordered by Beijing to swiftly reduce their leverage and build a decent cash buffer.

That unleashed a new series of deals requiring the help of financial middlemen. Last year, in response to the government’s edict, Hui spun off a property management unit and completed a $550 million share sale for the group. Earlier this year Evergrande’s electric-car subsidiary announced a $3 billion share placement and Hui secured another $2 billion from strategic investors with a plan to list its property and auto-trading platform Fangchebao soon.

Last year’s equity deals pulled in $28 million for investment banks, according to Dealogic. Granted, that’s just about half the record $63 million in fees they earned underwriting Evergrande’s debt in 2020, but was a sharp rise from zero in 2019. More deals are in the pipeline. Besides Fangchebao, Evergrande is seeking a secondary offering for its electric-vehicle arm in Shanghai. It’s also planning to take public Evergrande Spring after recently repurchasing a 49% stake in the bottled-water unit Hui founded, which he tried and failed to list in China in 2015 and later sold at a loss.

It’s understandable that some banks may remain wary of Evergrande; Hui’s grandiose business plans often have holes. But the prospect of more fees may lure others to the party. Bank of America, for example, is advising on the Fangchebao listing, per Bloomberg. And they now have more places to go: At least eight other cash-strapped mainland property developers have proposed spin-offs this year, according to consultancy CRIC. That’ll broaden the capital-markets bonanza beyond Evergrande.

 

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