Some of Greater China’s largest investors have agreed to pay a total of HK$23.5 billion ($3 billion) for stakes in China Evergrande’s property management unit ahead of an anticipated IPO in Hong Kong, according to an announcement late last week.
Chan Hoi Wan, wife of Chinese Estates boss, fugitive and frequent Evergrande collaborator Joseph Lau, is taking the biggest slice of the share sale by paying HK$4.5 billion for just over 5.37 percent of the new entity, with the remaining investors including Internet giant Tencent Holdings and Alibaba subsidiary Yunfeng Capital, as well as US venture firm Sequoia Capital.
The spin-off by mainland China’s largest developer by contracted sales also attracted subscriptions from CITIC Capital as well as mainland lenders Agricultural Bank of China and China Everbright Bank.
China Evergrande Group will retain 72 percent of the equity in Mangrove 3 Ltd, as the property management business has been named, with 14 investors combining to take a 28 percent stake in the spin off ahead of a possible separate listing on the Hong Kong stock exchange.
The planned IPO is one of an ongoing stream of property management businesses being listed by mainland real estate developers after Evergrande competitor Country Garden Holdings raised HK$28.1 billion by listing Country Garden Property Service Holdings in Hong Kong in 2018.
Four-Fold Profit Growth in 2019
“The strategic investment will introduce a number of renowned strategic investors to the Group’s Property Management Business, which will enhance the corporate profile and support the growth and development of the property management business,” Evergrande said. The firm has valued its spin-off at not less than RMB 75 billion ($10.8 billion).
Net profit at Evergrande’s property management unit skyrocketed nearly four-fold last year, compared to 2018, to total RMB 922.5 million ($132.8 million), according to the group’s filing. Revenue in 2019 rose by 7.6 percent year on year to RMB 4.4 billion.
An earlier report by Reuters indicated that Evergrande is aiming to conduct the property management IPO in Hong Kong during the first half of 2021 with a goal of raising from US$1 billion to US$2 billion. The terms of the spin-off share sale require Evergrande to complete the IPO within two years of the subscription agreement being completed.
Mainland investment bank Huatai Securities, which took the second-largest segment of the spin-off share sale at 4.77 percent, is said to be supporting Evergrande’s IPO plans, as are ABC International, CCB International, CLSA, and Haitong Securities. Switzerland’s UBS is also said to be part of the banking team for the offering.
The property management firm currently oversees over 1,400 projects covering around 500 million square metres in more than 280 cities worldwide.
Property Management IPOs On the Rise
With Evergrande on its way to a potential payday, the mainland’s fourth-largest developer by sales, Sunac China Holdings, announced its own plan to spin off its property management division on 6 August.
The Tianjin-based builder said that it plans to establish a separate listing for the new company on the Hong Kong exchange, with Sunac retaining at least 50 percent of the equity in the new entity.
So far in 2020, 13 property management firms have submitted their IPO prospectus, including Shimao Service and Jinke Smart Service, according to real estate consultancy firm CRIC Research Center.
“In our opinion, although property management is still regarded as a subsection of the real estate industry, with the enrichment of service content and the improvement of quality, the property management industry is expected to develop into an independent and large-scale sector,” CRIC said in its 2020 Property Management Industry Strategy Report.
By the end of 2019, the total market value of the property management sector reached RMB 232 billion, an increase of 182.5 percent from the beginning of the year. Over that same period the share prices of listed property management companies rose by 66.6 percent.
CRIC estimates that the total market value of listed mainland property management companies will increase by at least 30 percent in 2020, exceeding RMB 300 billion.