IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

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Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Equity Capital Markets

Evergrande Property Services / Equity Capital Markets

<a href="https://www.smartkarma.com/entities/evergrande-property-services" target="_blank" data-smartkarma-citation="entities:30921:1" rel="noopener">Evergrande Services (EGS HK)</a> is a Chinese property management provider. Evergrande ranked fourth in GFA under management, among the Top 100 property management companies in China in 2019, according to CIA. The controlling shareholder is <a href="https://www.smartkarma.com/entities/china-evergrande-group" target="_blank" data-smartkarma-citation="entities:479:1" rel="noopener">Evergrande Real Estate Group (3333 HK)</a>. Evergrande is joining the ever-expanding list of property management IPOs by seeking to raise $2 billion, according to press reports.  <div class="content-highlight">Property developers continue to spin-off their property management arms due to tight credit conditions. However, investors are spoiled for choice due to the plethora of opportunities to gain exposure to the Chinese property management sector through listed companies and a healthy queue of IPO hopefuls. An IPO hopeful needs to offer a combination of strong fundamentals and/or attractive valuation to grab attention. Overall, Evergrande’s fundamentals are attractive, in our view. </div>

Evergrande Services (EGS HK) is a Chinese property management provider. Evergrande ranked fourth in GFA under management, among the Top 100 property management companies in China in 2019, according to CIA. The controlling shareholder is Evergrande Real Estate Group (3333 HK). Evergrande is joining the ever-expanding list of property management IPOs by seeking to raise $2 billion, according to press reports.  Property developers continue to spin-off their property management arms due to tight credit conditions. However, investors are spoiled for choice due to the plethora of opportunities to gain exposure to the Chinese property management sector through listed companies and a healthy queue of IPO hopefuls. An IPO hopeful needs to offer a combination of strong fundamentals and/or attractive valuation to grab attention. Overall, Evergrande’s fundamentals are attractive, in our view. 

Evergrande Property Services IPO Initiation: Standing Out

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Media reports from Bloomberg and other sources suggest that <a href="https://www.smartkarma.com/entities/evergrande-real-estate-group-limited" target="_blank" data-smartkarma-citation="entities:479:1" rel="noopener">Evergrande Real Estate Group (3333 HK)</a> has launched an equity placement - a so-called top-up placement - for 490 million shares at a price of HK$16.50-17.20, or an 11.1-14.7% discount to the last traded price of $19.34/share. There is apparently an upsize option of an additional 120mm shares.This offer appears scheduled to raise up to US$1.043-1.087bn in funds with US$255mm more from the upsize option if done at the lower end of the range. The news surrounding Evergrande recently has been less than salutary for investors. Despite highly bullish commentary around unofficial and unaudited figures in early July which appeared to have sent the shares soaring nearly 40% in 3 days to HK$28/share, several weeks later on 16 August the company released a profit warning and results came out the 31st of August. On the 13th Evergrande had sold a US$3bn stake in its property management vehicle, sold another block in <a href="https://www.smartkarma.com/entities/china-evergrande-new-energy-vehicle-group-ltd" target="_blank" data-smartkarma-citation="entities:713:1" rel="noopener">Evergrande Auto (708 HK)</a>, was preparing a near-term listing of its property management entity and was looking to conduct a large offering for Evergrande Auto on the Star Board.  Hints of further ugliness came out in the last days of August and early days of September when it was reported that a dozen real estate developers had been called into a meeting 20 August to let them know they had been chosen to participate (participation not optional) in a pilot programme which restricted lending growth to companies which did not cross Three Red Lines which were...<ol style="list-style-type: decimal;">
<li>a liability-to-asset ratio (excluding pre-sales) of 70%,</li>
<li>a net debt-to-equity ratio of 100%, and</li>
<li>cash holdings equal to 100% of short-term debt.</li>
</ol>Evergrande handily beats all three and therefore would be restricted from new borrowings (including increase outstanding debt to pay the coupons on existing debt). This means that Evergrande needs to de-lever. It reportedly has started doing so since earlier this year but it is not clear what the necessary reference points are and where Evergrande stands in relation to those reference points in terms of showing that it is making progress (if it doesn't meet the Three Red Lines thresholds, it needs to show it is making progress towards doing so in future). The last straw was the <a href="https://uk.reuters.com/article/china-evergrande/chinas-no-2-developer-evergrande-pleads-for-government-support-to-avoid-cash-crunch-idINL3N2GL2H9" target="_blank" rel="noopener">reported</a> letter (which Evergrande <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0924/2020092401313.pdf" target="_blank" rel="noopener">denied existed</a>) which had asked the Guangdong government for assistance in aligning its debt obligations and repayment schedule so that unwanted disruption and confusion in the marketplace did not occur (those tracking this story may have a slightly more blunt way of phrasing this). There was also the matter of the 3yr expiry of the Hengda equity putback coming in January 2021 if that business were not listed. This too caused consternation in the market. All of this was discussed in <a href="https://www.smartkarma.com/insights/evergrande-may-be-facing-a-funding-squeeze" target="_blank" data-smartkarma-citation="insights:43592" rel="noopener">Evergrande May Be Facing a Funding Squeeze</a> on 27 September.Following the news coverage, shares dropped sharply, the bonds traded weaker, but a few days later Evergrande somehow <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0929/2020092900829.pdf" target="_blank" rel="noopener">managed to convince</a> a large chunk of the equity financiers of Hengda to roll their ownership/funding for another year. That helped keep the wolves at bay for Jan 2021 but Evergrande still has a long way to go to be able to cross the Three Red Lines in the other direction. Asset sales and equitization are paramount, and along those lines, on 29 September Evergrande <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0929/2020092901436.pdf" target="_blank" rel="noopener">submitted its listing application</a> to the Hong Kong Stock Exchange to list Evergrande Property Services Group. More money is on the way. <h2>Today's NEW News</h2>Evergrande has announced an equity offering to raise cash for "refinancing and working capital." The thing is, US$1.1bn or even US$1.35bn won't cut it. Evergrande has RMB 820+bn of short-term and long-term interest-bearing debt, extended accounts payable, and the Hengda contingent liability floating around. This is nothing. So why are they doing it?That's the thing. There IS a reason. It appears obvious to me. And it doesn't make the stock more investible. More below the fold.

Media reports from Bloomberg and other sources suggest that Evergrande Real Estate Group (3333 HK) has launched an equity placement - a so-called top-up placement - for 490 million shares at a price of HK$16.50-17.20, or an 11.1-14.7% discount to the last traded price of $19.34/share. There is apparently an upsize option of an additional 120mm shares.This offer appears scheduled to raise up to US$1.043-1.087bn in funds with US$255mm more from the upsize option if done at the lower end of the range. The news surrounding Evergrande recently has been less than salutary for investors. Despite highly bullish commentary around unofficial and unaudited figures in early July which appeared to have sent the shares soaring nearly 40% in 3 days to HK$28/share, several weeks later on 16 August the company released a profit warning and results came out the 31st of August. On the 13th Evergrande had sold a US$3bn stake in its property management vehicle, sold another block in Evergrande Auto (708 HK), was preparing a near-term listing of its property management entity and was looking to conduct a large offering for Evergrande Auto on the Star Board.  Hints of further ugliness came out in the last days of August and early days of September when it was reported that a dozen real estate developers had been called into a meeting 20 August to let them know they had been chosen to participate (participation not optional) in a pilot programme which restricted lending growth to companies which did not cross Three Red Lines which were...
a liability-to-asset ratio (excluding pre-sales) of 70%,
a net debt-to-equity ratio of 100%, and
cash holdings equal to 100% of short-term debt.
Evergrande handily beats all three and therefore would be restricted from new borrowings (including increase outstanding debt to pay the coupons on existing debt). This means that Evergrande needs to de-lever. It reportedly has started doing so since earlier this year but it is not clear what the necessary reference points are and where Evergrande stands in relation to those reference points in terms of showing that it is making progress (if it doesn't meet the Three Red Lines thresholds, it needs to show it is making progress towards doing so in future). The last straw was the reported letter (which Evergrande denied existed) which had asked the Guangdong government for assistance in aligning its debt obligations and repayment schedule so that unwanted disruption and confusion in the marketplace did not occur (those tracking this story may have a slightly more blunt way of phrasing this). There was also the matter of the 3yr expiry of the Hengda equity putback coming in January 2021 if that business were not listed. This too caused consternation in the market. All of this was discussed in Evergrande May Be Facing a Funding Squeeze on 27 September.Following the news coverage, shares dropped sharply, the bonds traded weaker, but a few days later Evergrande somehow managed to convince a large chunk of the equity financiers of Hengda to roll their ownership/funding for another year. That helped keep the wolves at bay for Jan 2021 but Evergrande still has a long way to go to be able to cross the Three Red Lines in the other direction. Asset sales and equitization are paramount, and along those lines, on 29 September Evergrande submitted its listing application to the Hong Kong Stock Exchange to list Evergrande Property Services Group. More money is on the way. Today's NEW NewsEvergrande has announced an equity offering to raise cash for "refinancing and working capital." The thing is, US$1.1bn or even US$1.35bn won't cut it. Evergrande has RMB 820+bn of short-term and long-term interest-bearing debt, extended accounts payable, and the Hengda contingent liability floating around. This is nothing. So why are they doing it?That's the thing. There IS a reason. It appears obvious to me. And it doesn't make the stock more investible. More below the fold. 

Evergrande Equity Placement - Musical Shares

David Blennerhassett

Event-Driven

Last Week in Event SPACE: NTT Docomo, Evergrande Properties/Auto, Wilmar, Swire, Immunomedics

<div>
In <a href="https://skr.ma/Bx5Bh" target="_blank" rel="noopener">StubWorld: Evergrande Auto (708 HK) Tapping All &amp; Sundry; ASM Pacific Going Private?</a>, I discussed <a href="https://www.smartkarma.com/entities/evergrande-health-industry-group-ltd" target="_blank" data-smartkarma-citation="entities:713:1" rel="noopener">Evergrande Auto (708 HK)</a>'s (also officially known as China Evergrande New Energy Vehicle Group) <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0918/2020091800129.pdf" target="_blank" rel="noopener">announcement</a> of an intention to list on Shanghai's Sci-Tech Board (also known as the "Star Market").
A notice for the EGM has now been <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0925/2020092501950.pdf" target="_blank" rel="noopener">despatched</a>. The EGM will be held on the 20 October. Pricing has yet to be determined for the listing, but the announcement states:
<blockquote>
The offer price shall not be lower than the closing price of the Hong Kong Shares immediately prior to the date of the Board meeting approving the Proposed Issue of RMB Shares, i.e. HK$25.00 per Share.
</blockquote>
Shares are down ~20% since that Board meeting - after taking into account today's 20% gain.  
Applying the timeline for a handful of precedent RMB issuances,  Evergrande Auto's listing on the STAR board could potentially take place in late Jan/early Feb 2021. 
As usual, more below the fold.
</div>


In StubWorld: Evergrande Auto (708 HK) Tapping All &amp; Sundry; ASM Pacific Going Private?, I discussed Evergrande Auto (708 HK)'s (also officially known as China Evergrande New Energy Vehicle Group) announcement of an intention to list on Shanghai's Sci-Tech Board (also known as the "Star Market").
A notice for the EGM has now been despatched. The EGM will be held on the 20 October. Pricing has yet to be determined for the listing, but the announcement states:

The offer price shall not be lower than the closing price of the Hong Kong Shares immediately prior to the date of the Board meeting approving the Proposed Issue of RMB Shares, i.e. HK$25.00 per Share.

Shares are down ~20% since that Board meeting - after taking into account today's 20% gain.  
Applying the timeline for a handful of precedent RMB issuances,  Evergrande Auto's listing on the STAR board could potentially take place in late Jan/early Feb 2021. 
As usual, more below the fold.


Evergrande Auto (708 HK): EGM Ahead Of Star Market Listing

Stories appeared Thursday in China talking about (and showing a picture of) a purported letter from <a href="https://www.smartkarma.com/entities/evergrande-real-estate-group-limited" target="_blank" data-smartkarma-citation="entities:479:1" rel="noopener">Evergrande Real Estate Group (3333 HK)</a> to the Guangdong government dated 24 August asking for assistance in restructuring. The letter is reported to have said that its cashflow would be endangered because of a need to repay RMB 130 billion to strategic investors by end January 2021 if Evergrande did not achieve a backdoor listing of its principal mainland subsidiary Hengda Real Estate (which it has been trying to do for three years by injecting Hengda into Shenzhen-listed Shenzhen Special Economic Zone Real Estate &amp; Properties Group Co. Ltd.), and such asset sales and lack of ability to raise debt would impair the smooth functioning of the real estate and loan market. The letter asks for assistance in moving forward the listing plan, despite the fact that this would break the informal ban on listing new real estate companies on local exchanges.I refer to media reports about this story in <a href="https://www.bloomberg.com/news/articles/2020-09-24/evergrande-warns-of-looming-liquidity-crunch-spooking-investors" target="_blank" rel="noopener">Bloomberg</a>, <a href="https://www.caixinglobal.com/2020-09-25/china-developer-evergrande-denies-its-seeking-government-support-101609336.html" target="_blank" rel="noopener">Caixin Global</a>, <a href="https://uk.reuters.com/article/china-evergrande/chinas-no-2-developer-evergrande-pleads-for-government-support-to-avoid-cash-crunch-idINL3N2GL2H9" target="_blank" rel="noopener">Reuters</a>, and others about the purported letter.Evergrande issued a SOLEMN DECLARATION via the HKEX Friday night. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/161/716/original/Screenshot%202020-09-25%20at%2012.30.05%20PM.png?1601008218" class="editor-image img-responsive" data-smartkarma-image-id="161716"></figure>The story introduced a fair bit of volatility in trading Friday 25 September 2020. The shares fell early, rose to be +6% on the day, then fell sharply - at one point -14.6% on the day.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/161/768/original/Screenshot%202020-09-25%20at%208.28.09%20PM.png?1601036926" class="editor-image img-responsive" data-smartkarma-image-id="161768"></figure>194.7 million shares traded. That is the highest in more than 3 years, and represents over 13% of the Real World Float of the company. The stock ended down 9.5% on the day. <a href="https://www.smartkarma.com/entities/china-evergrande-new-energy-vehicle-group-ltd" target="_blank" data-smartkarma-citation="entities:713:1" rel="noopener">China Evergrande New Energy Vehicle Group (708 HK)</a> was down 13% on Friday. The whole China real estate developer sector listed in Hong Kong fell in a sea of red. Bloomberg <a href="https://www.bloomberg.com/news/articles/2020-09-25/evergrande-faces-crisis-of-confidence-over-120-billion-debt?sref=ZEpEDN5v" target="_blank" rel="noopener">reported</a> the dollar bonds of Evergrande were the worst performer in the Bloomberg Barclays Asia Dollar Bond index. And the domestic bonds fell sharply, with a yuan bond due 2022 falling 18% to RMB 77.7 and a 2024 dropping 30% to 65.9 yuan, with trading reportedly suspended. The company came out again on Friday to say that business was doing OK. But clearly, some people see an issue.Much more below the fold.<div></div>

Stories appeared Thursday in China talking about (and showing a picture of) a purported letter from Evergrande Real Estate Group (3333 HK) to the Guangdong government dated 24 August asking for assistance in restructuring. The letter is reported to have said that its cashflow would be endangered because of a need to repay RMB 130 billion to strategic investors by end January 2021 if Evergrande did not achieve a backdoor listing of its principal mainland subsidiary Hengda Real Estate (which it has been trying to do for three years by injecting Hengda into Shenzhen-listed Shenzhen Special Economic Zone Real Estate &amp; Properties Group Co. Ltd.), and such asset sales and lack of ability to raise debt would impair the smooth functioning of the real estate and loan market. The letter asks for assistance in moving forward the listing plan, despite the fact that this would break the informal ban on listing new real estate companies on local exchanges.I refer to media reports about this story in Bloomberg, Caixin Global, Reuters, and others about the purported letter.Evergrande issued a SOLEMN DECLARATION via the HKEX Friday night. The story introduced a fair bit of volatility in trading Friday 25 September 2020. The shares fell early, rose to be +6% on the day, then fell sharply - at one point -14.6% on the day.194.7 million shares traded. That is the highest in more than 3 years, and represents over 13% of the Real World Float of the company. The stock ended down 9.5% on the day. China Evergrande New Energy Vehicle Group (708 HK) was down 13% on Friday. The whole China real estate developer sector listed in Hong Kong fell in a sea of red. Bloomberg reported the dollar bonds of Evergrande were the worst performer in the Bloomberg Barclays Asia Dollar Bond index. And the domestic bonds fell sharply, with a yuan bond due 2022 falling 18% to RMB 77.7 and a 2024 dropping 30% to 65.9 yuan, with trading reportedly suspended. The company came out again on Friday to say that business was doing OK. But clearly, some people see an issue.Much more below the fold.

Evergrande May Be Facing a Funding Squeeze

China

Evergrande Auto researches, develops, and manufactures new energy vehicles. The Company engages in vehicle manufacturing, electric motor control, power batteries, vehicle sales, smart charging, shared mobility, and more. Evergrande Auto also operates health management businesses.

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Evergrande Auto (708 HK)

Evergrande Property Services IPO Initiation: Standing Out

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Evergrande Equity Placement - Musical Shares

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Last Week in Event SPACE: NTT Docomo, Evergrande Properties/Auto, Wilmar, Swire, Immunomedics

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David Blennerhassett