Shenzhen Investment, an investment arm of the government of the south China city that is home to Evergrande’s headquarters, said in a stock exchange filing on Friday night that it likely fell into the red last year after recording a fair value loss of about HK$6 billion (US$770 million) on its holdings in Hengda Real Estate, the developer’s unit, “mainly due to the considerable drop in the share price of China Evergrande Group”.
Evergrande shares tumbled 89.3% over the course of 2021, but are so far up 1.9% for the new year, closing today at HK$1.62.
Shenzhen Investment, which had recorded HK$1.39 billion in net profit for the first half of 2021, originally contributed 5.5 billion yuan as a part of a group of 25 investors who put 130 billion yuan into Hengda over three funding rounds in 2017.
Shenzhen Investment shares fell 6% in early trading in Hong Kong today, eventually closing down 2.2% at HK$1.77.
Between 2018 and 2020, the municipal company collected a total of 1.95 billion yuan in annual dividend payments from Hengda holdings, as Evergrande delivered on commitments to pay out at least 60% of the unit’s profit to investors, although it sometimes fell short of earnings targets.
Hengda did not pay out its promised annual dividend for 2020 last year.
In late 2020, Evergrande reached deals with the Hengda investors under which they waived rights to demand full repayment from the group over its inability to carry through with plans to list on the Shenzhen Stock Exchange.
Terms of those deals have not been disclosed.
Last month, the government of Guangdong province, which oversees Shenzhen, assumed oversight of Evergrande, with a new risk management committee dominated by local officials and executives of state-owned companies taking charge.
Around the same time, Fitch Ratings and S&P Global Ratings declared Evergrande in default after it failed to catch up on missed bond coupon payments.
Fitch also declared Hengda in default.
Hengda, though, was able to dodge potential default on a 4.5 billion yuan domestic bond last week when holders agreed to let the unit postpone until July a coupon payment that was due and to push back their first chance to demand the company pay off the debt.
Some Hengda investors have fared better than Shenzhen Investment, helped by the property business’s earlier 100 billion yuan in dividend payouts.
Shenzhen Jianyi Decoration Group, for example, said in April 2020 that it had sold its whole 200 million yuan interest in Hengda to a Shenzhen-based investment company at face value.
Shandong Hi-Speed Group, a state-owned operator of railways and highway, disclosed last month in a bond prospectus that it had reached a deal to sell off its 20 billion yuan interest in Hengda to a Shenzhen government-owned company.
Shandong Hi-Speed made the biggest injection in 2017, but has now disposed of 12 billion yuan of its holding.
Shandong Hi-Speed, which signed a nebulous strategic cooperation agreement with Evergrande in 2013, said in its 2020 results that it generated 9.48 billion yuan in investment returns that year, mostly from its Hengda stake; by comparison, it recorded 5.86 billion yuan in operating profits then.
Most of the other 2017 Hengda investors, such as retailer Suning Group and design company Grandland Holdings, channelled their funds through private vehicles.
At the parent company level, Evergrande’s most pained backer appears to be Hong Kong developer Chinese Estates Holdings, previously its second-largest shareholder.
It said on Jan 7 that it expected to record a loss of HK$7.87 billion on Evergrande shares it had sold off and a fair-value loss of HK$3.05 billion on its remaining holdings.
Chinese Estates, which has also invested in Evergrande bonds, said it would record an estimated loss of HK$1.5 billion on the sale of other unspecified securities, along with a fair-value loss of HK$950 million.