(Reuters) – Chinese authorities have asked Ping An Insurance Group to take a majority stake in Country Garden, the country’s largest private property developer, four sources familiar with the plan said.

China’s State Council, led by Premier Li Qiang, has asked the government of Guangdong province, where both companies are based, to help organize Country Garden’s rescue, two of the sources said.

A Ping An spokesperson said the company had not been contacted by the government and denied reports reported by Reuters.

Ping An “was not approached by the government to take over Country Garden. We categorically deny this story. It is false,” the company said in a statement.

The insurer, which rivals China Life for the title of the country’s largest insurance group in terms of market share, declined to grant an interview with its founder and chairman, Ma Mingzhe. The latter, who also uses the English first name Peter, did not respond to a request for comment sent by email.

China’s State Council Information Office and the local Guangdong government did not respond to requests for comment. Country Garden declined to comment.

A state-sponsored rescue of Country Garden by Ping An would be one of the biggest interventions yet by authorities to support the cash-strapped and highly indebted real estate sector. The sector accounts for a quarter of China’s economic activity and has sparked fears of a broader financial crisis.

Authorities are keen to ensure that the risks posed by Country Garden’s liquidity problems do not spill over into the broader economy, three of the sources said.

While in China companies can rarely ignore a request from the central government, all three sources said Ping An had been asked to present a plan and would be given leeway to negotiate terms. of any agreement.

Discussions between authorities and Ping An’s top leaders began in late August and are in their early stages, two of them said.

Ping An was asked to initiate due diligence on Country Garden, two sources also said, adding that authorities understood the insurer was a listed company that had to report accounts to its shareholders.

A fifth person familiar with the matter said discussions between Ping An and the local Guangdong government about rescuing Country Garden took place in September.

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

The discussions 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 discussions, 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%, according to a source with direct knowledge and a person briefed on the project.

Country Garden’s largest shareholder, with a stake of about 52%, is Yang Huiyan, chairwoman of the board and daughter of a co-founder. Reuters was unable to reach her for comment.

If Ping An becomes 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.

Last month, the property developer missed a $15 million coupon payment deadline and the market estimated it was in default on its offshore bonds, which total some $11 billion. dollars.

Country Garden said it expected it would not be able to meet all of its foreign debt obligations and hoped to find a “comprehensive” solution to its difficulties.

SOLUTION FOR GUANGDONG

According to three sources, authorities want Country Garden’s liquidity problems to be resolved in Guangdong province. Ping An was a natural choice because it was based in the province as well as being a major shareholder in the group, according to two of the sources.

As of August 11, the insurer held a 4.99% stake in Country Garden, according to data from the Hong Kong Stock Exchange. Reuters could not determine whether Ping An currently holds Country Garden shares.

State-sponsored takeover of one company by another is not unprecedented in China, but not in real estate since Beijing announced measures in 2020 to tackle debt levels very high levels of the sector, which caused a liquidity shortage.

While many Chinese real estate developers, including the giant China Evergrande, have defaulted on their debt, policy measures have mainly focused on lowering mortgage rates and relaxing rules to facilitate access to property.

But in a sign that government authorities are ready to play a bigger role, China Vanke’s main shareholder, state-owned Shenzhen Metro, said on Monday it had prepared “market tools” worth of 10 billion yuan to support the country’s second largest real estate developer.

Country Garden had total liabilities of 1.4 trillion yuan as of the end of June and more than 3,000 projects under development nationwide.

Ping An has already been tapped by authorities to rescue troubled Founder Group in 2021 and 2022. Its main unit, Ping An Life, was part of a consortium that helped restructure the group’s debt and then took a 67% stake in the new structure.

(Reuters reporting; Kate Entringer, edited by Blandine Hénault)

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