Evergrande Eyeing UK-Homebuilder Cala in $856M Deal

China’s second largest developer is looking to acquire the UK homebuilder Cala Homes in a £700 million ($856 million) deal, according to a report in London’s Financial Times.

If completed, the acquisition would be the first time takeover of a UK developer by a mainland firm, although sources close to the deal told the FT that talks were at a preliminary stage and that no deal was guaranteed.

Hong Kong-listed Evergrande isn’t known for building homes outside of the mainland, but could an opportunity in the UK government’s recently announced plan to tackle a housing shortage by delivering one million new homes by 2020 via a £5 billion ($6.1 billion) housing fund.

Cala, which is owned by insurer Legal & General and property specialist Patron Capital, proclaims itself to be Great Britain’s most upmarket developer, and built 1,150 homes during the latest fiscal year with a majority of projects located in southeast England and Scotland. The company was valued at an estimated £380m by Barclays, according to the FT.

Evergrande Dumps Non-Core Assets To Refocus On Real Estate

For Evergrande a UK acquisition could mark the most recent change in direction for one of the mainland’s most aggressive — and most indebted — developers.

In September, Evergrande offloaded its agribusiness, dairy and spring water divisions which were all losing money for RMB 2.7 billion ($404 million). At the time, the Guangzhou-based property development group led by tycoon Xu Jiayin explained the move would allow it to better focus on its real estate interests.

Judging by the interest in Cala, it appears those efforts to focus on real estate might have also included international homebuilding ambitions. However, despite recouping some money from its non-core assets, expansion into the UK will likely see the firm bring on even more debt.

Evergrande leads China’s real estate industry in leverage, having built up debt obligations of RMB 381.3 billion ($57 billion), second behind only state-owned Petrochina.

Xu Increase His Stake In Rivals

Even as repayments on the firm’s perpetual bonds increased by 60 percent earlier this year, Xu, also known by his Cantonese name Hui Ka-yan, continues to buy. Most recently, he increased Evergrande’s stake in domestic rivals Vanke and Langfang Development.

Xu’s outfit added to its stake in the former and now holds seven percent in China’s largest residential real estate developer, up from 6.82 percent. The Guangzhou-based firm became Vanke’s third largest shareholder in August when it purchased a $1.5 billion stake in the firm, which has spent most of 2016 fending off a hostile takeover attempt from Baoneng.

Evergrande also upped its stake in Shanghai-listed Langfang Development to 20 percent after purchasing a further five percent of the firm in a RMB 557.8 million ($82 million) deal.