Chinese authorities have directed Ping An Insurance Group to consider taking a controlling stake in Country Garden, the nation’s largest private property developer, a Reuters report said on Thursday.
The State Council, under Premier Li Qiang’s leadership, has reportedly instructed the local government of Guangdong province to facilitate a rescue of Country Garden by Ping An.
Reuters quoted a spokesperson for Ping An, who denied the development, “We categorically deny this story. It is untrue.”
The news significantly impacted the stock market, with Ping An’s Hong Kong-listed shares dropping 5.4 per cent, amounting to loss of $2.1 billion in market value, while Country Garden’s shares surged 12.2 per cent.
The state-backed intervention underlines the government’s concern over the liquidity issues prevalent in the highly indebted property sector, accounting for a quarter of China’s economic activity, and the fear of a broader financial crisis.
Economist Xu Tianchen from the Economist Intelligence Unit expressed that a potential takeover could have a “very significant positive impact on the property and capital markets”. He highlighted that only significant actions like equity injections could change the situation.
According to the sources cited by Reuters, the authorities aim to contain any risks from Country Garden’s financial troubles to prevent spill over into the broader economy. Although Ping An has been asked to consider the plan, the company is expected to have room to negotiate terms for the potential deal.
Talks between authorities and core leaders of Ping An have been going on since late August, focusing on conducting due diligence on Country Garden. The discussions are led by officials in the financial markets department of the People’s Bank of China (PBOC) and involve the National Financial Regulatory Administration (NFRA). The authorities are pushing for Ping An to take a stake of more than 50 per cent and potentially inject capital in stages to alleviate Country Garden’s liquidity issues.
The latest development hints at a more active role being played by the government in alleviating financial distress in private companies. This intervention, if successful, could set a precedent for addressing other financially troubled developers.
(With inputs from Reuters)
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