While the world's most indebted real-estate developer China Evergrande Group is seeking HK$8.43 billion ($1.1 billion) from a stock placement its largest strategic investor - state-owned conglomerate Shandong Hi-Speed Group - is keen to recoup 23 billion yuan ($3.4 billion), according to news reports.

Evergrande reportedly owes $120 billion.

Turning Investors Into Creditors 

Shandong Hi-Speed is a big company with assets of 730 billion yuan. It can demand to be repaid if Evergrande fails to get its long-delayed backdoor listing for its main real estate assets in China by Jan. 31, according to Bloomberg News.

Evergrande's other strategic investors include Suning.com, Amer International Group, China CITIC Bank, Zhongrong Trust, Shum Yip Group and Shenzhen Grandland Group. 

If Evergrande doesn't complete its reconstruction by Jan. 31 as much as 130 billion yuan in strategic investment will turn into debt.

Evergrande subsidiary Hengda Real Estate Group Co. is attempting to regain a listing on China's A-share market. The plan started in 2016 when the subsidiary company's stock was suspended. 

On Sept. 29, Evergrande reached an agreement with some of its investors to forgo their right to demand repayment of 86.3 billion yuan in the Evergrande subsidiary in return for Evergrande promising to repay the cash if the subsidiary didn't float by January.

Shandong Hi-Speed didn't agree to this deal.  

Digging Deeper In The Well

By offering 490 million shares in a top-up placement at HK$16.50 to HK$17.20 each, Evergrande is looking to raise $1.1 billion. The shares are subject to a 90-day lock-up period and the transaction is expected to be settled Friday, according to the South China Morning Post.

Analysts told SCMP that the $1 billion was insufficient for the company to be able to "pare down its large debt." Rather, it was to buy time from creditors to work out the capital structure through the sale of assets or fundraising.

Evergrande attracted several big-name buyers - including Vanguard, one of the world's largest providers of mutual funds, Norway's sovereign wealth fund Norges Bank, other leading fund companies Snow Lake, Key Square and LMR and British finance service company Legal & General.

Evergrande's stock price fell 17% in Hong Kong on Wednesday - its biggest decline in more than five years.

Mired In Reconstruction 

In late September, a letter purporting to be from Evergrande circulated online. In it Evergrande asked for government help in averting a potential cash crunch that could lead to systemic risks. 

Sources told Reuters that the Evergrande's letter asked the government of southern Guangdong province to support its plan for a listing for its subsidiary on China's A-share market by buying a company that was already listed in Shenzhen. 

Evergrande said the letter was fabricated.

Staying Within The Lines

Pursuing a listing for its property-management company, cutting prices on new homes and tapping markets in electric-vehicle units, Evergrande has been eager to clear debt.

In a move seen as combating speculation and slowing the overheated real estate market, the government is clamping down on excessive leverage and flow of capital.

In August, People's Bank of China and the Ministry of Housing and Urban-Rural Development laid out a proposal which would divide real estate enterprises into four tiers - divided by three "red lines" based on their debt-to-asset ratios, excluding advance revenue on sales.

In September, Evergrande made a bold move to reduce its debt-to-asset ratio. The company said it made an early payment of $1.565 billion of senior loans due Oct. 23 - the largest advance payment ever for a Hong Kong-listed company.