Image Source : China Visual

BEIJING, May 15 (TMTPost) —China Evergrande, its subsidiary Guangzhou Chiron Real Estate, and Xu Jiayin, the controlling shareholder and executive director of China Evergrande, received a court order requiring them to pay their strategic investor, according to an announcement made by the heavyweight property developer last Friday.

The order of execution was meted out by the Guangzhou Intermediate Court as a follow-up to the previous arbitration award of the Shenzhen Court of International Arbitration.

Evergrande Group introduced three batches of strategic investors for its plan to return to the A-share market seven years ago, with a combined capital increase of 130 billion yuan ($18.69 billion). After the company's risks were revealed, some of the initial investors were trying to avoid their losses.

China Evergrande's systemic funding crisis peaked in 2021. the company encountered rounds of debt collection by suppliers, financial institutions, wealth management clients, home buyers, and even internal employees in the second half of that year, and the debt woes spread to the whole society. But this was the first time for actual controller Xu to become a target of a court order in nearly two years since the debt default crisis.

According to the notice, the above-mentioned arbitration applicant is Hexin Hengju (Shenzhen) Investment Holding Center (Limited Partnership). After the shareholding penetration, Hexin Hengju is 100% owned by CITIC Trust.

In September 2016, China Evergrande launched a restructuring plan with Shenzhen Special Economic Zone Real Estate & Properties (Group). Chiron Real Estate and Evergrande Real Estate signed a cooperation agreement with Shenzhen Special Economic Zone Real Estate & Properties (Group) and its controlling shareholder Shenzhen Investment Holdings. According to the agreement, Shenzhen Investment Holdings would purchase all the equity of Evergrande Real Estate held by Chiron Real Estate by issuing shares or paying cash, and Chiron Real Estate would become the controlling shareholder of Shenzhen Special Economic Zone Real Estate & Properties (Group) after the completion of the transaction. As a result, China Evergrande can realize the return to the A-share market.

As the originally planned A-share listing subject of China Evergrande, Evergrande Real Estate introduced three batches of strategic investors in late December 2016, late May 2017, and November 2017, receiving 30 billion, 40 billion, and 60 billion yuan of funds respectively.

The three batches of strategic investors together hold 36.54% of Evergrande Real Estate's equity after the capital increase. A total of 24 strategic investors include financial institutions, local state-owned enterprises, and many enterprises in the supply chain of Evergrande Real Estate.

Both Chiron Real Estate and Evergrande Real Estate offered a valuation adjustment mechanism and made compensation commitments to the three batches of strategic investors. According to the agreement at that time, during the four years from 2017 to 2020, the net profit of Evergrande Real Estate after deducting non-recurring profit or loss shall not be less than 24.3 billion, 50 billion, 55 billion and 60 billion yuan respectively, and at least 68% of the net profit shall be distributed to the strategic investors in the form of dividends.

The deadline set by the first and second batches of strategic investors was January 31, 2020, and the third batch was until January 31, 2021. If Evergrande Real Estate could not complete the restructuring before the agreed deadline, the strategic investors could request Chiron Real Estate to buy back the equity at the original investment cost or request Chiron Real Estate to transfer the corresponding shares to the investors without compensation.

However, China Evergrande and Shenzhen Special Economic Zone Real Estate & Properties (Group) both announced the termination of the restructuring plan on November 8, 2020.