December 9, 2019 / 10:07 AM / 3 months ago

Evergrande's $2.7 billion dividend signals China listing delay, likely cash crunch - analysts

HONG KONG (Reuters) - Evergrande Group’s (3333.HK) record dividend, which is set to bring a $2 billion windfall for its chairman, could signal a delay to a planned domestic listing for the Chinese property firm and a potential cash squeeze, analysts said.

A promotional footage on a property development of China Evergrande Group is shown at a news conference on the company's interim results in Hong Kong, China August 30, 2016. REUTERS/Bobby Yip

The board of the Hong Kong-listed company proposed on Sunday a dividend of HK$1.578 per share for 2018, or HK$20.8 billion ($2.66 billion) in all, a record for the company.

With a stake of around 77%, Hui Ka Yan, chairman of China’s second largest property developer by sales, will alone pocket $2 billion.

Evergrande has been seeking a backdoor listing in Shenzhen since 2016 by a planned injection of almost all of its property assets into another listed company. It has raised 130 billion yuan from strategic investors contingent upon the listing.

Investors have the option of demanding 70 billion yuan back if the reorganisation and listing do not happen by end of next month, and the rest by end-Jan 2021.

By announcing the dividend now, Evergrande could signal that the listing will not happen any time soon, Lucror Analytics credit analyst Chuanyi Zhou said, as the Chinese securities regulator requires companies to halt paying dividend before it completes a restructuring.

“This could result in a maturity cliff for the company should the strategic investors choose to exercise their options,” Zhou said separately in a note, adding that together with the dividend payable, it “could drain the company’s liquid resources”.

An analyst at a major credit rating agency, who declined to be named because a new house view on Evergrande was yet to be discussed, said the slightly higher-than-expected payout will not affect the developer’s cash flow, but a potential 70 billion yuan repurchase of the strategic investors’ capital will have an impact.

However, he added Evergrande could communicate with the strategic investors on a new timetable if necessary.

Evergrande said in Wechat comments to Reuters the dividend being paid out was as per existing policy and that the reorganisation was progressing steadily. It said the strategic investors were confident about the company’s prospects.

The China Securities Regulatory Commission did not respond immediately to an emailed request for comment.

As at the end of June, Evergrande had cash of 206.8 billion yuan.

($1 = 7.0389 Chinese yuan renminbi)

($1 = 7.8249 Hong Kong dollars)

Reporting by Clare Jim; Editing by Muralikumar Anantharaman

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