China over­seas buys Citic's prop­erty as­sets for $4.8b

The Pak Banker - - 6BUSINESS -

BEI­JING: China Over­seas Land & In­vest­ment Ltd. said it will buy the Chi­nese res­i­den­tial prop­erty as­sets held by Citic Ltd. for about 31 bil­lion yuan ($4.8 bil­lion) as it ex­pands its pres­ence across the na­tion's cities amid surg­ing land prices.

China Over­seas will sell 1.1 bil­lion shares at HK$27.13 each to the Citic com­pa­nies as part of the trans­ac­tion, it said Mon­day in a state­ment to the Hong Kong stock ex­change. China Over­seas closed 1.8 per­cent higher at HK$26.20 in Hong Kong, af­ter ear­lier ris­ing as much as 6.8 per­cent. Citic fell 2.6 per­cent to HK$12.00, af­ter jump­ing 9.2 per­cent on Fri­day.

The prop­erty projects that China Over­seas is ac­quir­ing span 25 Chi­nese cities in­clud­ing top-tier hubs such as Bei­jing, Shen­zhen and Shang­hai and smaller ones such as Foshan and Chengdu. Prop­erty prices in China's largest cen­ters have surged this past year amid the govern­ment's moves to stim­u­late the real es­tate mar­ket, and reg­u­la­tors have pledged to dis­solve a glut of un­sold homes in lower-tier cities.

Edi­son Bian, a Hong Kong-based an­a­lyst at UOB Kay Hian Ltd., said the move is "jus­ti­fied" for China Over­seas given its am­ple cash and the in­ten­si­fy­ing com­pe­ti­tion for land amid high prices. The 24 mil­lion square me­ters of land be­ing ac­quired, equiv­a­lent to more than half of China Over­seas' ex­ist­ing land bank as of June 30, will be "highly ben­e­fi­cial" to the com­pany's fu­ture de­vel­op­ment, ac­cord­ing to the state­ment.

The de­vel­oper "strug­gled to fin­ish the sales tar­get last year, due to the lim­ited saleable re­sources, lead­ing to this ma­jor ac­qui­si­tion which will cer­tainly help the com­pany to catch up the game and re­main seated in a lead­ing po­si­tion," he wrote in an emailed note. Fund­ing the ac­qui­si­tion with new shares also helps China Over­seas pre­serve cash, "so it can con­tinue buy­ing af­ter this deal," said Alan Jin, a Hong Kong-based real es­tate an­a­lyst at Mizuho Se­cu­ri­ties Asia Ltd. "The com­pany's bal­ance sheet re­mains very solid."

Citic, China's big­gest con­glom­er­ate that sprang from the na­tion's first state-owned in­vest­ment cor­po­ra­tion, has been seek­ing to un­lock value from its land port­fo­lio over the past year as it stream­lines its op­er­a­tions amid a broader re­struc­tur­ing of sta­te­owned en­ter­prises. The sale will leave it with an ap­prox­i­mately 10 per­cent stake in China Over­seas and it will also re­ceive ad­di­tional as­sets val­ued at an es­ti­mated 6 bil­lion yuan, ac­cord­ing to the state­ment. HSBC Hold­ings Plc ad­vised China Over­seas on the deal. "Prop­erty re­struc­tur­ing has been a long-awaited move by in­vestors," an­a­lysts at Credit Suisse Group AG wrote in a note to clients on Mon­day. The move at Citic, along with oth­ers in re­cent months, "led us to be­lieve that the trend of prop­erty-re­lated SOE re­struc­tur­ing is real," ac­cord­ing to the re­port.

Green­town China Hold­ings may be the next one to ben­e­fit from the re­struc­tur­ing of State-owned com­pa­nies' prop­erty-re­lated op­er­a­tions, the an­a­lysts wrote.

The trans­ac­tion may be neg­a­tive for China Over­seas as Citic's high con­cen­tra­tion of as­sets in so-called Tier-3 Chi­nese cities is not in line with its stated strat­egy, ac­cord­ing to Credit Suisse, which said the po­ten­tial for cul­ture shock dur­ing the in­te­gra­tion is also seen as a risk.

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