Chinese authorities have asked Ping An Insurance Group to take a controlling stake in troubled Country Garden (2007.HK), the country’s largest private property developer, four people familiar with the plan said.
China’s State Council, headed by Premier Li Qiang, has instructed the local government of Guangdong province, where both companies are based, to help arrange a rescue of Country Garden by Ping An, two of the sources with direct knowledge of the matter said.
A spokesman for Ping An (601318.SS) said the company had not been approached by the government and denied the information reported by Reuters.
Ping An “has not been asked by (the) government to take over Country Garden. We categorically reject this story. It is untrue,” the company said in a statement.
A spokesman said: “We stand by our reporting.”
The insurer, which vies with China Life (601628.SS) for the title of the country’s biggest insurance group by market value, declined to make its founder and chairman, Ma Mingzhe, available for an interview. Ma, who also uses the English first name Peter, did not respond to an email request for comment from Reuters.
China’s State Council Information Office and the Guangdong local government did not respond to requests for comment. Country Garden declined to comment.
Ping An’s Hong Kong-listed shares closed 5.4 percent lower in heavy trading, wiping about $2.1 billion off its market value. Country Garden’s shares surged 12.2%, valuing the company at about $3 billion, and shares of other Chinese developers also jumped.
A state bailout of Country Garden by Ping An would be one of the most significant steps yet by the authorities to prop up the cash-strapped and heavily indebted property sector, which accounts for a quarter of China’s economic activity and has sparked fears of a wider financial crisis.
“If true, this will have a very significant positive impact on the property and capital markets,” said Xu Tianchen, senior economist at the Economist Intelligence Unit.
“Only capital injections, such as corporate takeovers or nationalisations, are likely to restore the confidence of homebuyers and investors and significantly change the situation.”
The authorities are keen to ensure that any risks posed by Country Garden’s liquidity problems do not spill over into the wider economy, three of the sources said.
While companies in China can rarely ignore a request from the central government, the three sources said Ping An has been asked to provide details of the plan and will have leeway to negotiate the terms of any deal.
Talks between the authorities and Ping An’s senior management began in late August and are still at an early stage, two of them said.
Ping An has been asked to conduct due diligence on Country Garden, two of the sources said, adding that the authorities understand that the insurer is a listed company that is accountable to shareholders.
A fifth person with knowledge of the matter said some discussions between Ping An and the Guangdong local government about rescuing Country Garden took place in September.
All the sources declined to be identified because of the sensitivity of the matter.
The talks between Ping An and the authorities are being led by officials from the financial markets department of the People’s Bank of China (PBOC), the central bank, and include Country Garden, two sources said.
The National Financial Regulatory Administration (NFRA) is also involved in the talks, they added.
Neither the PBOC nor the NFRA responded to Reuters requests for comment.
The authorities want Ping An to take a stake of more than 50%, according to a person with direct knowledge and a person briefed on the plan.
Country Garden’s largest shareholder, with a stake of about 52%, is Yang Huiyan, chairwoman and daughter of a co-founder. Reuters was unable to contact Yang for comment.
If Ping An were to become Country Garden’s controlling shareholder, the authorities would want it to inject capital in stages to ease the developer’s liquidity problems, four sources said.
The developer missed a deadline to pay a $15 million coupon last month and the market has deemed it in default on its offshore bonds, which total about $11 billion.
Country Garden has said it expects to be unable to meet all of its offshore debt obligations and hopes to seek a “holistic” solution to its difficulties.
Chinese authorities are keen to make the proposed takeover a possible template for other financially troubled developers, two of the sources also said.
The authorities are keen for Country Garden’s liquidity problems to be resolved within Guangdong, three sources said. Ping An was a natural choice because it is based in Guangdong and was a major shareholder in Country Garden, two of the sources said.
Ping An published this report that it no longer holds any shares in Country Garden. It held a 4.99% stake as of 11 August, according to Hong Ko.
