Tycoon who helped Evergrande has debt challenges of his own

Beijing

HUI Ka Yan built China Evergrande Group with support from a tight-knit group of fellow real estate billionaires with a fondness for poker.

When he forged a deal last month to avert a cash crush, Mr Hui relied on another friend: one who made his fortune selling washing machines and air-conditioners, and shares his passion for football.

Zhang Jindong, the founder of Suning Appliance Group, stood next to him at the signing ceremony celebrating the Evergrande agreement.

Among the three dozen strategic investors involved, Mr Zhang was the largest corporate supporter to waive his right to force a repayment by January from the developer.

With a US$120 billion debt pile, Evergrande is the world's most-indebted developer. In the week leading up to the deal, the firm's shares dropped 16 per cent and its yuan note due 2023 tanked to a record low. Both assets have since rebounded.

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"The supplementary agreement is very critical for Evergrande's long-term development," said Maggie Hu, an assistant professor at the business school of the Chinese University of Hong Kong.

She said it is reasonable that Suning acted to give a lifeline to Evergrande during the crisis, explaining that "their commercial interests are closely linked".

While the two have done business together for a long time, doubts over their relationship briefly emerged, when Suning said before last month's agreement that it was planning to demand the return of its investment should an Evergrande unit fail to list on a domestic exchange by January.

The news also raised questions over Suning's financial health after the coronavirus pandemic hit retailers particularly hard.

Mr Zhang's flagship Suning.com reported a 13 per cent drop in revenue and a loss of 166.6 million yuan (S$33.8 million) in the first half of 2020, compared with a 2.14 billion yuan profit for the same period a year earlier.

Even before Covid-19, Mr Zhang's empire was showing signs of strain: Debt at his Suning Real Estate Group soared by 47 per cent last year as sales fell by one-third. By April, one of his units had pledged its entire stake in a financial arm valued at 56 billion yuan to four institutions for funds, State Administration for Industry and Commerce records showed.

The hit to the 57-year-old tycoon's fortune is clear: He has lost more than 30 per cent of his wealth this year and is now worth US$5.1 billion, showed the Bloomberg Billionaires Index.

Suning was born in 1990, when Mr Zhang quit his job at a state-owned company and began selling air-conditioning units with the proceeds from a cafe he opened in Nanjing.

The business grew quickly, and by 2002 Suning had stores in major Chinese cities. The company now has more than 2,800 outlets nationwide, with Mr Zhang's empire spanning retail, finance, real estate and even sports - he owns Chinese Super League football club Jiangsu Suning and Italian team Inter Milan.

While the football connection helped strengthen links with Mr Hui, who also owns a Chinese team, their ties go deeper. Suning invested 20 billion yuan in Evergrande's subsidiary Hengda Real Estate in 2017 and the two set up a US$3 billion joint venture to develop Suning malls the following year.

More recently, Evergrande used Suning's e-commerce platform to help sell homes during the Singles' Day online promotions. The deals highlight the importance of China's "guanxi" - social networks of influence among business titans.

Mr Zhang is close to the nation's richest man, Jack Ma, too, and Dalian Wanda Group founder Wang Jianlin, to whom he offered a lifeline when he was nearing a cash crunch two years ago.

In 2015, Alibaba Group Holding invested US$4.6 billion for a 20 per cent stake in Suning, which in turn put more than US$2 billion in the e-commerce giant, a stake later sold for a 14 billion yuan profit that Mr Zhang later used to expand.

But Suning's expansion came at a cost, and the pandemic is forcing the company to re-evaluate its plans.

As the firm is about to celebrate its 30th anniversary, Mr Zhang said it will spend the next decade focusing on services to stand out from competitors. The retailer will aim to enhance its supply-chain, logistics and finance capabilities, connecting with more small and medium-sized retailers, an article on the company's website said. BLOOMBERG