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According to four individuals familiar with the plan, Chinese authorities have asked Ping An Insurance Group to acquire a controlling stake in Country Garden, the largest private property developer in the country.
Two sources stated that China’s State Council, led by Prime Minister Li Qiang, has instructed the local government of Guangdong province, where both companies are headquartered, to facilitate the rescue of Country Garden by Ping An. This information was disclosed by individuals with direct knowledge of the matter.
In response to the information reported by Reuters, Ping An spokesperson denied the report and stated that the government had not contacted the company.
Ping An stated in a released statement, “We categorically deny this story. It is false. Ping An has not been asked by the government to acquire Country Garden.”
While competing with China Life for the position of the country’s largest insurance group by market value, Ping An declined to comment and declined to make its founder and chairman, Ma Mingzhe, available for an interview. Additionally, Ma did not respond to an emailed request for comment from Reuters.
Requests for comment from China’s State Council Information Office and the Guangdong local government went unanswered. Country Garden also declined to comment on the matter.
If the state-engineered rescue of Country Garden by Ping An were to take place, it would be one of the most significant interventions by the authorities to support the cash-strapped and heavily indebted property sector, which accounts for a quarter of China’s economic activity and has raised concerns of a widespread financial crisis.
Officials want to ensure that any risks arising from Country Garden’s liquidity issues do not have a spill-over effect on the broader economy, according to three sources.
Although companies in China rarely ignore requests from the central government, three sources said Ping An has been asked to provide details of the plan and will have flexibility to negotiate the terms of any deal.
Two individuals with knowledge of the matter stated that talks between officials and Ping An leaders began in late August and are still in the early stages.
Ping An has also been requested to conduct due diligence on Country Garden, said two sources. These sources also mentioned that officials are aware that the insurer is a publicly listed company accountable to shareholders.
Another source familiar with the matter stated that there were discussions in September between Ping An and the Guangdong local government regarding the rescue of Country Garden.
All sources declined to be named due to the sensitivity of the issue.
According to two sources, officials leading the discussions between Ping An and officials are from the financial markets department of the People’s Bank of China (PBOC), the central bank that oversees Country Garden.
The National Financial Regulatory Administration (NFRA) is also said to be involved in the negotiations, but both the PBOC and the NFRA did not respond to requests for comment from Reuters.
According to an individual with direct knowledge and another individual briefed on the plan, executives want Ping An to acquire a stake of more than 50%.
Yang Huiyan, the chairperson and daughter of a co-founder, is the largest shareholder of Country Garden with a stake of approximately 52%. Reuters was unable to reach Yang for comment.
If Ping An were to become the controlling shareholder of Country Garden, executives would want the insurer to inject capital in stages to alleviate the developer’s liquidity issues, claim four sources.
Last month, the property developer missed the deadline to pay a $15 million coupon, leading the market to consider it in default on its offshore bonds, totaling about $11 billion.
Country Garden stated that it anticipates being unable to meet all of its offshore debt obligations and hopes to seek a comprehensive solution to its difficulties.
Chinese officials also want this proposed acquisition to serve as a potential model for other financially troubled developers, said two sources.
According to three sources, officials are keen on resolving Country Garden’s liquidity problems within Guangdong. As Ping An is based in Guangdong and has been a major shareholder of Country Garden, it was seen as a natural choice, stated two sources.
According to data from the Hong Kong Stock Exchange, Ping An held a 4.99% stake in Country Garden as of August 11. It remains unknown whether Ping An currently owns shares in Country Garden.
In China, the state-engineered takeover of one company by another is not uncommon. However, since Beijing announced measures in 2020 to address the industry’s soaring debt levels, which have caused a liquidity crunch, there has been no change in the property sector.
While many other Chinese property developers, including the giant China Evergrande, have defaulted on their loans, policy measures have primarily focused on reducing mortgage rates and loosening regulations to facilitate home purchases.
However, as a sign that government officials are willing to assume a more prominent role, state-owned Shenzhen Metro, the largest shareholder of China Vanke, announced on Monday that it had committed 10 billion yuan ($1.4 billion) to support the country’s top property company. They aim to create “market instruments” of value for two developers.
As of the end of June, Country Garden had liabilities totaling 1.4 trillion yuan ($190 billion). The company is involved in more than 3,000 ongoing projects across the country.
Ping An has previously been recognized by executives as a rescuer of struggling companies. In 2021 and 2022, it participated in state-directed support for the Peking University Founding Group. Its main unit, Ping An Life, was part of a group that restructured the group’s debt and subsequently acquired 67% ownership of the reorganized company.
($1 = 7.2846 Chinese yuan)
(Reported by Reuters staff; Edited by Anne Marie Rountree, Antoni Slodkowski, Don Durfee, and Edwina Gibbs)