HIGHLY leveraged property firm China Evergrande Group is in talks with financial institutions to raise about US$1.5 billion this month by offering its Hong Kong office tower as collateral, two sources with direct knowledge of the matter said.

The fundraising plan by China’s No.2 developer by sale underscores the pressure the developer is under, as China’s property sector slows and the government’s capital controls have restricted its ability to pay offshore debt, which stood at US$16.4 billion as of the end of June.

Evergrande bought the office tower in Wan Chai, a bustling business district, for HK$12.5 billion (US$1.6 billion) in 2015 from Chinese Estates Holdings.

Evergrande, which has yet to fully settle the transaction, plans to use the capital raised from refinancing the tower partly to pay back offshore debt and make dividend payments, one of the sources said.

Evergrande did not respond to requests for comment. The sources requested anonymity because the talks were private.

While the practice of raising money by offering property as collateral is not uncommon among highly leveraged Chinese developers, it is unusual to securitize a building that has yet to be fully paid off, a property market expert said.

Evergrande had agreed to pay off the tower in instalments to Chinese Estates within six years of the sale.

“Evergrande is trying to extract additional liquidity,” said one of the sources, who has direct knowledge of the fundraising plan.

Helped by record profit and a boom in China’s property market, Evergrande cut its net gearing ratio to 127 percent at end-June from 184 percent at the end of 2017, while total borrowings dropped as much as 8 percent during the period. (SD-Agencies)