By
Chimamanda U. Martha
October 17th, 2023
According to the company, the proposed $2 billion to be raised for the Fangchebao unit will be used to bolster its financial positioning.
China’s second-largest property developer China Evergrande Group (HKG: 3333) has revealed it will be selling a 10% stake in its Fangchebao (FCB) unit, its online real estate, and automobile marketplace ahead of an anticipated Initial Public Offering (IPO), in a so-called pre-IPO round. As reported by Reuters, the proposed stake will be sold to 17 investors in a deal that is expected to bring in about HK$16.35 billion (US$2.10 billion).
China Evergrande noted that the unit of interest will be listed on a major stock exchange which may include the Nasdaq Global Select Market or any other alternative public exchange. The company is renowned for its many subsidiaries and per the Reuters report, there are plans underway to churn out even more of these functional subunits in order to lower its bogus debt portfolio as well as help allay investors fears for its cash flow amid tightened regulatory scrutiny of the industry.
It is not uncommon for China Evergrande to float some of its subsidiaries as the firm listed Evergrande Property Services Group Ltd in December, raising $1.8 billion with a brewing plan announced back in January to raise $3.35 billion for the China Evergrande New Energy Vehicle Group Ltd. Per the latter funding proposal, 6 new investors were targeted.
At the time of writing, China Evergrande shares are trading at HKD15.34, up 3.51% in the past 24 hours.
Fangchebao $2B Pre-IPO Funding Will Enhance the Company’s Financial Strength
According to the company, the proposed $2 billion to be raised for the Fangchebao unit will be used to bolster its financial positioning while also being directed to foster growth and development.
“The group’s financial strength will greatly be enhanced, furthering the rapid development of FCB,” Evergrande said.
Per the terms of the pre-IPO deal, the company said half of the proposed cash to be raised will be done through the sales of existing shares and the issuance of new shares will account for the other half that is to be raised. Of the $2.1 billion expected cash inflow, the firm intends to utilize about 50% for its corporate obligations.
Amongst the 17 investors that will be participating in the Fangchebao pre-IPO funding round there CITIC Capital and the family of the chairman of New World Development Co Ltd, plus the chief executive of Evergrande, Xia Haijun amongst others. As one of the terms of the deal, the prospective investors can ask China Evergrande to repurchase the shares at a 15% premium if the FCB unit does not go public within a year.
With a debt profile to the tune of $110 billion, investors will be anticipating a better financial declaration ahead of the firm’s 2020 fiscal year earnings report on Tuesday.