(Yicai Global) Nov. 9 -- China Evergrande Group’s shares rose after the country’s largest real estate developer by sales pulled the plug on a restructuring plan, ending a four-year push to bring its property unit to market through a backdoor listing in Shenzhen.

Evergrande [HKG: 3333] closed 2.2 percent higher today at HKD16.84 (USD2.17), after pulling back as much as 2.3 percent and gaining up to 2.5 percent.

The Shenzhen-based developer will abort the restructuring plan with Shenzhen Special Economic Zone Real Estate & Properties Group to merge Evergrande Real Estate with the backdoor listing vehicle, the two said in statements yesterday.

The merger failed mainly because conditions are still unripe for a major asset restructuring in the current market environment, Shenzhen SEZ Real Estate said, adding that reform of the southeastern city’s state-backed firms would have gotten caught up in this complex major asset reorganization as Evergrande Real Estate is a sector leader with many assets.

Investors that stumped up CNY120 billion of the CNY130 billion (USD19.7 billion) involved in the reorganization have agreed to remain Evergrande Real Estate shareholders rather than seek repayment, Evergrande said. The company has returned CNY3 billion and CNY5 billion is still the subject of talks.

Evergrande’s shares tanked about 10 percent on Sept. 25 on concerns the company would have to settle the CNY130 billion investment with strategic investors, saddling the debt-laden business with even more liabilities.

Evergrande and Shenzhen SEZ Real Estate announced the backdoor listing plan via an asset restructuring in 2016. Rapid growth of China's real estate sector has fizzled since then, and the risks of the sector's highly leveraged business expansion have gradually grown. Cash flow pressures have risen along with debt risks.

Evergrande pounded the pavements to bring in strategic investors, dilute its stake in Evergrande Real Estate and meet the exchange’s listing terms. Evergrande’s ownership in the unit fell to about 63.5 percent, as investors bought about 36.5 percent.

Confident of the success of the reverse merger then, Evergrande Real Estate set generous terms for investors, including a fairly high dividend and a share repurchase if the backdoor listing were to fail.

Following a four-year suspension of trading in its shares, Shenzhen SEZ Real Estate [SHE: 000029] soared today by the exchange-imposed daily limit of 10 percent to CNY11.89.

Editor: Ben Armour