China authorities ask Ping An to take controlling stake in Country Garden: Sources

A state-engineered rescue of Country Garden by Ping An would be one of the most significant interventions to date by authorities to support the cash-squeezed and highly indebted property sector, which accounts for one-quarter of China’s economic activity and has sparked fears of a broader financial crisis.

Authorities are keen that any risks posed by Country Garden’s liquidity problems should not spill over to the wider economy, said three of the sources.

While in China companies can rarely ignore a request from the central government, the three sources said Ping An has been asked to come up with details of the plan and will have leeway to negotiate terms of any deal.

Talks between authorities and core Ping An leaders began in late August and are still at an early stage, said two of them.

Ping An has been asked to conduct due diligence on Country Garden, two sources also said, adding that authorities understood the insurer was a listed company answerable to shareholders.

A fifth person with knowledge of the matter said some talks between Ping An and the Guangdong local government about a rescue of Country Garden took place in September.

All sources declined to be identified due to the sensitivity of the matter.

Discussions between Ping An and authorities are being led by officials in the financial markets department of the People’s Bank of China (PBOC), which is the central bank, and include Country Garden, said two sources.

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.

Authorities want Ping An to take a stake of more than 50 per cent, according to one person with direct knowledge and one person briefed on the plan.

Country Garden’s largest shareholder with a stake of about 52 per cent is Yang Huiyan, chairperson and daughter of a co-founder. Reuters was not able to reach Yang for comment.

If Ping An were to become Country Garden’s controlling shareholder, authorities would like it to inject capital in stages to ease the developer’s liquidity problems, according to four sources.

The property developer last month missed a deadline to pay a US$15 million coupon and the market has deemed it to be in default on its offshore bonds which total some US$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 eager to make the proposed takeover a possible template for other financially troubled developers, two of the sources also said.