HONG KONG Reuters - Chinese state-owned Yuexiu Property has pulled out of a proposed $1.7 billion buyout of China Evergrande Group's Hong Kong headquarters building over fears about the developer's dire financial situation, two sources said.
The collapse of the talks to repay creditors is another setback for cash-strapped Evergrande, which has been scrambling to divest some assets to repay creditors knocking on its doors. With more than $300 billion in liabilities, it has already missed three rounds of interest payments on its international bonds.
Yuexiu, based in the southern city of Guangzhou, was close to sealing a deal in August with purchase of the 26 - storey China Evergrande Center in Wan Chai District of Hong Kong that serves as Evergrande's local headquarters, said the sources.
The deal, however, faltered after Evergrande's board opposed the move over concerns that Yuexiu's unresolved indebtedness would create potential complications in completing the transaction smoothly, they said.
Once China's top developer, Shenzhen-based Evergrande has sought to raise funds by offloading assets - from properties to stakes in subsidiaries - both in mainland China and Hong Kong.
Evergrande and Yuexiu were not responding to the requests for comment.
The people disabled to be identified due to confidentiality constraints.
Evergrande bought a new Harbourside Building, located in the commercial and nightlife district of Hong Kong and covers an area of 345,000 square feet, from local peer Chinese Estates Holdings for HK $12.5 billion. This is worth $1.61 billion in 2015.
That deal set a record for a single transaction of a business in the Asian financial hub with the highest price per square foot at the time. It also made Evergrande the city's biggest property in the world.
Evergrande has financed the bulk of the transaction with securitised products worth more than HK$10 billion, said one of the sources, which means it would only recoup limited cash from the sale of the building.
The board of Yuexiu, which focuses on property developments in Hong Kong and has a presence in China, became concerned about the deal's certainty at a time when Evergrande's future is uncertain, said one of the sources.
Yuexiu also received guidance from the municipal government of the southern city of Guangzhou to put the purchase on hold until the end of August, said the person.
A separate source familiar with the matter confirmed the deal in late August because the Guangzhou government wanted to analyze the overall financial situation of Evergrande first to better understand how the use of proceeds from its asset disposals.
The government of Guangzhou did not respond to a request for comment.
Separately, Evergrande is in final talks to sell a 51% stake in its property management arm Hopson Development to domestic-only peer Evergrande Property Services, in a deal that could fetch about HK $20 billion, said two of the sources.
One of them said both parties are finalising details including funding for the buyer.
When asked about the deal, Hopson says any comments will have to wait till an announcement is made.
If you are lucky & lucky, the Hopson deal is Evergrande's biggest asset sale yet. The struggling developer's other business interests include a bottling water company and an electric vehicle maker.
It is also close to selling its Guangzhou City Construction Investment Group and surrounding residential projects to Guangzhou FC Soccer Stadium, Reuters reported last month.