How Evergrande’s rags-to-riches founder is trying to save his empire

It’s a surprising turnaround for a man who built one of the world’s largest property companies while fighting poverty in rural China. In times of trouble, Hui was able to rely on the help of her tycoon friends and the support of the local government. This time around, Hui appears more alone than ever, with liabilities totaling $305 billion and the company’s asset prices plummeting.

“He’s not interested in bailing out,” said Desmond Shum, whose book about his dealings with China’s political elite, “Red Roulette,” recounted how he once happened to a superyacht with Went shopping. “In the position he is in now, I don’t think any political connection will come to his rescue.”

What happens to Hui is open to questions, including whether he will retain ownership of his empire. One of his associates and fellow billionaire Zhang Jindong lost control of his Suning Group retail arm when he received a state-backed bailout in July – partly because he helped Hui during a tight spot. Other heads of failed companies have faced worse conditions, from arrest to execution.

Hui’s empire is turning into one of the biggest victims of President Xi Jinping’s efforts to curb debt-fueled excesses and mitigate risks to the country’s housing market. Evergrande and its affiliated companies were created through an aggressive mix of dollar debt issuance, share sales, bank loans and shadow financing — funding avenues that have all been cut. The group is now facing at least one debt restructuring, which could be China’s biggest ever.

Even his longtime supporters can lose patience. Chinese Estates Holdings Ltd., which is controlled by the family of property mogul and fellow poker pal Joseph Lau, is selling Evergrande stock and said it may offload its entire stake.

Hui remains in charge of the group and was seen publicly at the Communist Party’s 100th anniversary celebration in Tiananmen Square in July, showing the power of their political ties. He met with employees last month, and signed a public statement emphasizing the importance of completing the construction of the properties that were sold.

Evergrande did not immediately respond to questions seeking comment.

Yet a lack of public support for Hui from Beijing and her dwindling fortune – below $15 billion this year – is forcing her to intensify efforts to save her empire, such as Evergrande’s once-prize Selling a stake in the property. This reportedly includes selling a majority stake in its property services unit to another developer controlled by the billionaire Chu family.

Hui has survived many challenges in the past. He was born in 1958 in Henan Province. After losing his mother as an infant, he was raised by his grandmother and his father, who cut wood for a living. Education brought freedom from poverty. Hui graduated from the Wuhan Institute of Science and Technology in 1982, just as Deng Xiaoping was opening up the economy. After working in a steel company, he quit his job in 1992 to try his luck in real estate.

expansion of empire

He founded Evergrande in the southern city of Guangzhou in 1996, and over the following decades built the firm into a colossus that controlled land more than five times the size of Manhattan. Hui did not stop at the property, earning interest in football and volleyball teams, bottled water, online entertainment, banking and insurance. He vowed to eclipse Elon Musk as “the world’s most powerful new energy automobile company”.

As the company grew, so did Hui’s wealth. According to Bloomberg calculations, his personal fortune reached $ 42 billion at its peak in 2017. His majority in Evergrande meant he benefited generously from dividends — pocketing $8 billion from 2011 alone.

His companies bought luxurious mansions, including one in Sydney, which was to be sold in 2015 after the Australian government violated foreign investment rules. Prior to stepping down recently, he was the sole director of a company that owned a $100 million home in the hills above Hong Kong Island, according to a company registry filing.

Hui made sure he aligned his business with areas that align with the priorities of China’s Communist Party leaders, especially Xi – from making the country a global tech leader to winning the World Cup. He is a member of the Political Advisory Committee, which helps advise the government on policy. In 2018, he was included in the official list of 100 Outstanding Entrepreneurs.

Hui reported millions of jobs created by the company and billions of yuan paid in taxes. He also emerged as a philanthropist, topping the Forbes China list for charitable donations.

In a speech that same year, Hui said, “Everything in Evergrande belongs to the party, the country and the society. That’s why we must take social responsibility.”

new era

Yet there were growing concerns about the size of the company’s debt, which had grown to more than $100 billion by 2018. That year, China’s central bank selected Evergrande, along with HNA Group, Tomorrow Holding Company and Fosun International Ltd., for its ability to pose systemic risk to the financial system. The era of the conglomerate expanding through aggressive debt-fuelled takeovers of China was coming to an end.

Hui, pledging to reduce his reliance on leverage, turned to friends and corporate connections to raise money – as he often did in the past.

His companies have since 2018 traded nearly $3.6 billion with real estate empires run by three other Chinese magnates — members of the so-called Big Two club fond of the poker game of the same name. These include the lau of Chinese estates. His investments included buying a stake in Hui’s electric car and property service units as well as an online sales platform.

But regulators kept tightening the screws. Shadow loans – non-bank financing that accounted for nearly one-third of Evergrande’s debt in 2019 – dried up, opaque lending through joint ventures was scrutinized, and regulators cut their “three red lines” to limit leverage. With the policy stopped fresh borrowing.

Such measures helped trigger a liquidity crisis for Hui in 2020. A failed backdoor for Evergrande’s mainland unit left investors on the hook for more than $20 billion in repayment. A leaked letter by Evergrande to the provincial Guangdong government (the company said the documents were fabricated) warned that the company faced a potential default that could affect the financial system. Soon after, a settlement was secured to avoid most reparations, supported by local authorities. Hui retreated from the brink – but it didn’t last long.

Disputes with suppliers over outstanding bills started making headlines. Some demanded submission of assets, others brought projects to a grinding halt. Local support waned, at least in public, as Xi intensified his crackdown on the real estate sector and pursued his campaign to create “general prosperity”.

Despite Evergrande’s size, there is little indication that Beijing will act to help.

Hu Xijin, editor-in-chief of state tabloid Global Times, said in a Weibo post last month that companies like Evergrande may not be ‘too big’ to explode once. “They must have the ability to defend themselves through the market,” he said.

Donald Low, director of the Institute for Emerging Market Studies at the Hong Kong University of Science and Technology, said a huge bailout would send the wrong message while Xi is trying to rein in billionaires and close the country’s wealth gap.

“Saving Evergrande poses a moral hazard, increases the potential for more debt like Evergrande, and perhaps most importantly, the president’s efforts to promote common prosperity will be seen as a bailout – rightfully so. From – in the form of huge subsidies for the rich,” Lou said.

Instead, Hui is ramping up asset sales to find cash to pay off the company’s many creditors – demanding payments on some 40 billion yuan in Evergrande high-yield investment products from retail investors, 1.6 million homebuyers who buy apartments. make deposits. has yet to be made, as well as bondholders. The company is Asia’s largest issuer of junk bonds. International rating firms have repeatedly downgraded the company’s debt as concerns grew that the firm would default.

Evergrande last month agreed to sell a portion of its stake in a mainland bank to the local government, which S&P Global Ratings said is the first step toward solving the company’s liquidity crisis. Evergrande is also in talks for the sale of a 51% stake in its property services unit to Hopson Development Holdings Ltd., Calian reported Oct.

“If they can successfully sell this unit, it will help pay off short-term debt, but it will also limit the company’s future growth,” said Kenny Ng, a strategist at Everbright Sun Hung Kai Company.

The pressure is increasing. Evergrande has given no indication that it has paid a two dollar bond coupon recently, with financial regulators encouraging the company to take every possible measure to avoid a near-term default on dollar bonds. It has defaulted on interest payments to at least two of its biggest bank creditors. Shares of the company — which are currently suspended — are down 80% this year, while its dollar bonds are at record lows.

As Hui seems increasingly isolated, time will tell if the billionaire can find a way out of his current challenge. Even if they do, their empire is likely to look very different, as Xi pursues his ambitious plans to reshape China’s economy.

A shrinking workforce means “China must rely exclusively on productivity for economic growth,” said Alejandra Grindle, chief economist at Ned Davis Research. “An excessive and unproductive real estate company like Evergrande is not conducive to a productive approach.”

This story has been published without modification in text from a wire agency feed. Only the title has been changed.