China’s Ping An Sold Stake in Country Garden, Has No Plans to Buy the Troubled Firm

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Ping An Insurance (Group) Co. said it doesn’t hold any shares in Country Garden Holdings Co. and has no plans to acquire the distressed Chinese developer, refuting a report that sent the insurance giant’s stock tumbling on Wednesday.

The insurer said in a Shanghai Stock Exchange filing that it hasn’t received any suggestions or requests from any government agency to take over Country Garden, responding to a Reuters report that China’s State Council instructed the government of Guangdong province to ask Ping An to take a controlling stake in the developer.

People with knowledge of the matter earlier told Bloomberg News that Ping An had offloaded its Country Garden stake last quarter and has no takeover plans. Ping An held 4.9% of Country Garden as of August, according to data compiled by Bloomberg.

Speculation over Country Garden’s fate has been swirling since the company defaulted on a dollar bond last month. While Chinese authorities have recently increased efforts to put a floor under the biggest property downturn in decades, analysts have expressed skepticism over the logic of a Ping An-Country Garden combination.

Ping An has said it’s trying to reduce exposure to the sector, and regulators have been encouraging insurers to focus on their core business. As a non-state company, Ping An lacks ready access to government funding of the sort that would likely be required to restore market confidence in Country Garden without putting the insurer’s own financial health in doubt.

“The odds are low for such a move to happen,” said Willer Chen, senior analyst at Forsyth Barr Asia Ltd. “It’s a weird move to ask a non-state-owned insurer to take on such national service.”

Shares of Ping An swung between gains and losses in early trading on Thursday in Hong Kong, after dropping 5.4% the previous day. Country Garden slid as much as 4.8% following a 12% jump on Wednesday.

Country Garden and another defaulted property giant, China Evergrande Group, have played an outsized role underpinning the livelihoods of tens of thousands of employees and construction workers. They sold homes to buyers who are still waiting for them to be built.

Chinese President Xi Jinping has ramped up steps to support the economy recently, such as by issuing more sovereign debt for infrastructure spending, raising the budget deficit ratio and even making an unprecedented visit to the central bank.

Authorities have taken several moves in recent months to fine-tune real estate policy, including a broad relaxation of down-payment requirements for homes and cuts to some mortgage rates.

That hasn’t been enough to turn things around: Property investment contracted 9.1% in the first nine months of the year. Country Garden’s September contracted sales tumbled 81% from a year earlier.

Ping An itself has been burnt by the real estate crisis. About 24 billion yuan ($3.3 billion) of its profit was wiped out in 2021 due to its investments in China Fortune Land Development Co. The company’s exposure to the property sector stood at about 4.5% of total investments at the end of September.

What Bloomberg Intelligence Says:

Ping An is unlikely to take over Country Garden because residential projects aren’t assets that offer long-term returns, unlike offices. The insurer took a 24 billion yuan profit hit in 2021 due to its China Fortune Land stake, and we believe the firm would scrutinize any potential investment to safeguard shareholders’ and policyholders’ interest.
— Insurance analyst Steven Lam

The central government has long held the stance that Ping An should focus on its core business in insurance and financial services, said Zerlina Zeng, an analyst at CreditSights.

“Given the property-related impairments that it has incurred in the past, I think the hurdle is not low for taking a controlling stake in another defaulted developer,” she said.

Photograph: Country Garden Holdings branding. Photo credit: Qilai Shen/Bloomberg