China’s real estate companies have captured major headlines for expanding geographically into global real estate markets, and now the country’s biggest developer, China Vanke, is expanding into the finance sector with a $442 million investment into a bank IPO.
Last week officials at Vanke confirmed that the company would buy up to 883,986,000 shares of Huishang Bank as part of the bank’s IPO. The shares are set to debut on the Hong Kong exchange at a price between HK$3.47 and HK$3.88.
As the total amount of cornerstone investment sought by Huishang was only $510 million, Vanke’s move will give it 87 percent of the cornerstone investment and set the stage for the Shenzhen-based developer to be the bank’s largest shareholder following the IPO – with a stake of more than 8 percent.
Selling Houses and Mortgages Together
The move to become the biggest shareholder in Huishang gives Vanke not only an opportunity to diversify its holdings beyond its core business of real estate development, but also to better control the access to financing that its customer need when buying the firms housing.
Vanke built its business in China primarily by developing and marketing housing for China’s middle class, and while it has since expanded into commercial real estate, the firm’s primary source of revenue continues to be the residential market.
In explaining the company’s strategy, Vanke said in a statement that it is investing in Huishang to “better meet its customers’ demands for financial services.”
Credit Suisse which helps to market shares in Vanke says that the developer intends to be an “integrated service provider” for its real estate clients, offering both homes and the financing necessary to purchase them.
First Vanke National Bank?
The more interesting scenario to consider, however, is Vanke’s potential to move into finance in a bigger way, providing loans and capital for purposes other than buying Vanke real estate.
China’s finance sector has been slowly liberalising in recent years as some of its more successful private companies seek to compete with the country’s creaky state-run banks.
Just last week e-commerce giant Alibaba secured approval from the China’s Securities Regulatory Commission to market investment products online, and in September inked a deal with China Minsheng Bank to offer financial products to its clients.
Tech giants Baidu and Tencent are also apparently planning moves into the finance sector.
Vanke has also let it be known that it plans to buy a third-party payment-service license in the future, as well as moving into micro-financing.
So while US and Australian property owners may be lining up to sell to Chinese real estate firms, it seems that China’s banking sector may have to start lining up their defenses against these cashed-up developers.