China Evergrande Unit Flags Possible Takeover Bid

The $7 billion property-management unit of ailing developer China Evergrande Group EGRNF -6.10% said it could be the subject of a takeover bid, a deal that could bring in much-needed cash for its parent company.

Shares in both Evergrande and its management arm, Evergrande Property Services Group Ltd., were halted in Hong Kong on Monday. The subsidiary said the halt was pending an announcement concerning “inside information and a possible general offer for the shares of the company.”

A rival developer, Hopson Development Holdings Ltd. 754 1.65% , said Monday that its shares were halted pending an announcement about a transaction involving a Hong Kong-listed target company, which it didn’t name.

Evergrande has fallen behind on payments to global bondholders. It has been trying to raise funds by selling assets outside its core development business, including stakes in its property-management and electric-vehicle arms, and a Hong Kong office building.

Property management has boomed as an industry in China, and many of the country’s big developers have obtained separate stock-market listings for these businesses, which manage apartment complexes and help residents with services such as child care, groceries and repairs.

Evergrande’s subsidiary, which listed on the Hong Kong stock exchange in December 2020, has a market capitalization of about $7.1 billion, according to FactSet. The parent company raised about HK$37.5 billion, the equivalent of $4.8 billion, from the unit’s initial public offering and from an earlier sale of shares to pre-IPO investors. As of May, Evergrande retained a stake of nearly 61% in the business, filings show.

Evergrande didn’t immediately respond to a request for comment. Calls to Hopson’s Hong Kong and mainland offices weren’t answered. Mainland China is observing a weeklong holiday following its National Day on Friday.

Hong Kong-listed Hopson is majority-owned by property billionaire Chu Mang Yee, a former local-government official in the mainland who cofounded the business in 1992. His daughter, Chu Kut Yung, succeeded him as chairman last year.

Evergrande, China’s most indebted property developer, has kept global markets on edge and sparked protests at home as it struggles to survive. WSJ explains why the company’s crisis is raising questions about the state of the world’s second-largest economy. Photo: Alex Plavevski/Shutterstock

The company is considerably smaller than Evergrande and reported revenue of the equivalent of about $2.1 billion, for the first six months of this year. About 7% of that figure was derived from property management. Hopson has properties mainly in southern Chinese cities near the coast such as Shenzhen and Guangzhou, the Yangtze River Delta including Shanghai and Hangzhou, and the economic region surrounding Beijing and Tianjin.

Last week Evergrande agreed to sell a near-20% stake in a commercial bank it part owns, Shengjing Bank Co., for the equivalent of about $1.5 billion to a Chinese state-owned enterprise. Shengjing Bank has demanded that Evergrande use net proceeds from that stake sale to repay what the developer owes it, a filing showed.

Another listed Evergrande unit, China Evergrande New Energy Vehicle Group Ltd. , is confronting its own financial challenges. Late last month the EV business warned that it was facing a “serious shortage of funds” and might not be able to meet its financial obligations.