HK’s richest woman rakes it in from Evergrande

The rich are just getting richer these days. First we have Guangzhou property tycoon Hui Ka-yan, who surpassed Wanda Group founder Wang Jianlin to become the richest man in China after his flagship Evergrande Real Estate Group (03333.HK) posted a fresh high on Thursday.

Evergrande also surpassed China Overseas Land and Investment Ltd (00688.HK) to become the largest property firm in mainland China, with market capitalization over HK$300 billion (US$38.4 billion) after a 70% surge in July alone.

And guess who is smiling? Kimbie Chan, Hong Kong’s richest woman.

Chan, who inherited Chinese Estates from her flamboyant husband Joseph Lau this year, is sitting on a huge paper profit of HK$7.4 billion from China Evergrande.

That came after Chinese Estates disclosed that it had bought 5% of Evergrande for HK$8.1 billion in the open market. Its stake was now worth HK$15.5 billion, or about two-thirds of its market capitalization as of July 27.

Chinese Estates was said to have joined hands with Evergrande to defend the latter against massive short-selling since May as hedge funds tried to profit from its huge debt. But Hui’s flagship kept seeking new highs after the firm announced a profit alert that would see its upcoming interim earnings triple.

Chinese Estates and Evergrande go back a long way, with a history of buying assets from each other. Chinese Estates was a cornerstone investor in Evergrande’s initial public offering back in 2009.

But the fortunes of the two companies went two different ways: Chinese Estates has been selling down assets for the past three years while Evergrande has been very aggressive in buying up property assets – and that may explain the large difference in their market cap.

In the past two years, Evergrande bought some HK$20 billion worth of properties, including a HK$12.5 billion purchase of the Mass Mutual Tower in Wan Chai, Hong Kong, from Chinese Estates.

In May 2016, Chinese Estates bought Shengjing Bank, based in Liaoning province, from Evergrande for HK$6.9 billion. Ten months later, Chinese Estates sold its stake for HK$7 billion to major shareholder Kimbie Chan, who pocketed a HK$3.3 billion special dividend from the Shengjing sale.

Interestingly, these share transfers were consummated as paper losses. Kimbie Chan bought these shares at a 66% premium to the then market price of Shengjing from Chinese Estates, which had bought the bank shares only to reduce the debt level of Evergrande.

But after this string of transactions, Chan seemed to be more than compensated with her company’s purchase in China Evergrande.

Chinese Estates has a history of stock punting, although not every time has it come out with a smile. Twenty years ago, it lost more than HK$3 billion, almost equivalent to the Entertainment Building it eventually sold that year, on some HSBC options.

But still, the rich rarely lose money. They just make it back from their friends.