Clare Jim and Kane Wu by Julie Zhu

HONG KONG, (Reuters) – Two sources claim that Yuexiu Property, a Chinese state-owned company, has pulled out from a $1.7 billion deal to purchase China Evergrande Group’s Hong Kong headquarters building. This was due to concerns about Yuexiu Property’s financial condition.

Evergrande is now in serious trouble after talks to buy the historic building collapse. Evergrande has been trying to get rid of assets as a way to pay its creditors. It has missed more than $300Billion in interest payments for international bonds, and it is now over $300Billion in debt.

According to sources, Yuexiu, who is based in Guangzhou’s southern city, was very close to closing a deal for the acquisition of the China Evergrande Centre on Hong Kong’s Wan Chai, which houses Evergrande’s local headquarters.

However, the deal was halted after Yuexiu’s board opposed it. They feared that Evergrande’s indebtedness could cause problems in closing the transaction.

Evergrande, once China’s most-respected developer, is based in Shenzhen and has sought out funds to increase its capital by selling off assets.

Evergrande, Yuexiu didn’t respond to our requests for comments.

Because of confidentiality concerns, they were not allowed to identify the individuals.

Evergrande purchased the Harbourside Building, located in Hong Kong’s Commercial and Night Life District and covering an area of 340,000 square feet from Chinese Estates Holdings in 2015 for HK$12.5 Billion ($1.61 Billion).

This transaction set the record for the single sale of a commercial property in Asia’s financial center at the highest per-square foot price. The property Evergrande was also named the single most valuable asset of the city.

One source said that Evergrande financed most of the transaction by securitised goods worth over HK$10billion, so it could only recoup a limited amount from the building sale.

EVERGRANDE PROSPECTS

One source said that Yuexiu’s board, which is focused on real estate developments in China’s Greater Bay Area, and also has an office in Hong Kong became worried about the certainty of the deal at a moment when Evergrande’s future was uncertain.

Yuexiu was also given guidance by the Guangzhou municipal government to stop the purchase at August’s end, according to the individual.

Another source close to the situation said that the deal was terminated late August after the Guangzhou government reviewed Evergrande’s overall financial status in order to understand how it would use proceeds from asset disposals.

An inquiry was made to the Guangzhou government for comments.

Two sources said that Evergrande was in talks to finalize a sale of a 51% interest in Evergrande Property Services’ property management arm Evergrande Property Services. This deal would be valued at around HK$20 billion.

According to one of the men, both sides are finalizing details for financing and the purchase.

Hopson responded to questions about the agreement by waiting for an announcement.

Hopson would represent Evergrande’s largest asset sales to date if the deal goes ahead. Other business interests of the struggling developer include an electric vehicle manufacturer and a bottling company.

Reuters reports that Guangzhou City Construction Investment Group may soon sell its Guangzhou FC Soccer Stadium and the surrounding residential developments.

($1 = 7.7784 Hong Kong dollars)