According to insiders, the Chinese government has asked insurance giant Ping An to take over the majority shares of the struggling real estate company Country Garden. As several people familiar with the matter reported on Wednesday, the State Council of the People's Republic has been tasked with coordinating the rescue measures. The goal: to prevent the impending collapse of Country Garden, which could trigger a domino effect in the real estate industry.
Ping An vehemently denied the insider allegations, yet the stocks of the troubled conglomerate fell by up to 5.8 percent on the Hong Kong stock exchange. In the meantime, the stocks of Country Garden experienced an unprecedented increase of 18 percent, while other real estate companies like Sunac, CIFI and Shimao were able to record gains of up to 37 percent.
The Chinese government and the provincial government of Guangdong have not yet commented on the allegations. Country Garden itself also did not want to comment on the rumors. According to insiders, the government has however given Ping An leeway to negotiate the terms of a possible takeover. In this case, the insurance giant is obliged to review Country Garden's books as part of a thorough due diligence.
The negotiations between Ping An and the government are led by the financial market department of the Chinese central bank and the NFRA financial supervisory authority. Neither the central bank nor the regulator could be reached for comment.
According to further insider information, the government plans for Ping An to take over the majority of Country Garden and provide financial support to the real estate corporation. This deal could serve as a model for rescuing other beleaguered businesses in the faltering industry. Yang Huiyan, the daughter of the company founder and largest shareholder with a 52 percent stake, could not be reached for comment.
Country Garden, until recently China's largest real estate developer, is battling for survival with a debt burden of around 180 billion euros. Just a few days ago, about 16 billion euros in the company's outstanding foreign debts were officially classified as payment defaults, after Country Garden was unable to service some bonds. The company is striving for a "holistic" solution to its financial problems and a collapse could plunge the world's second largest economy into recession.
The real estate sector, which includes prominent problem case China Evergrande, is a major economic factor contributing approximately a quarter to the economic output of the People's Republic. As early as 2021, Ping An participated in the rescue of the technology conglomerate Peking University Founder Group at the suggestion of the government.
For investors, this could potentially be an exciting scenario that they should carefully observe. With the possibility of a potential takeover by Ping An, there could be a turnaround for Country Garden and the entire real estate industry in China.
