China’s second largest property developer, Evergrande, is buying a 41 percent stake in Guanghui Group, a Xinjiang-based company that owns the world’s biggest chain of BMW dealerships and operates 737 auto retail facilities nationwide.
According to a stock exchange disclosure by the company, Evergrande will pay RMB 14.49 billion (US$2.11 billion) for a minority stake in the group which controls four listed subsidiaries including China’s largest car dealer China Grand Automotive, along with the world’s largest BMW dealer, Grand Baoxin Auto; Shanghai Xingye Housing Co; and Guanghui Energy.
Guanghui Group operates 737 authorized auto dealerships across China, and the acquisition marks Evergrande second auto-related deal in the past three months after the developer agreed in June to acquire a controlling share in electric vehicle startup Faraday Future from entrepreneur Jia Yueting.
Evergrande Commits Nearly $3B to Auto Initiatives
While Evergrande has yet to announce a strategy for entering China’s already crowded auto industry, China’s second-largest developer by sales has now committed to investing nearly $3 billion into auto-related ventures after spending HK$6.75 billion ($865 million) to acquire its controlling stake in Faraday during June.
While the company’s core business continues to revolve around home sales, which helped Evergrande to achieve a record-high 125 increase in profit during the first half of 2018, the Shenzhen-based developer is still willing to invest in areas far from its main area of expertise.
In April Evergrande announced that it would devote RMB 100 billion over the next ten years to initiatives in the life sciences, aviation, quantum technology, new energy, artificial intelligence, robotics and modern agriculture. That interest in technology comes after Evergrande earlier unsuccessfully tried its hand at consumer products by launching Evergrande Spring bottled water in 2014, before it later launched its own cooking oil and dairy divisions, before ultimately closing down or selling off these businesses.
With its tech initiatives, however, Evergrande kept its eye on real estate angle, proposing to put its tech cash into building high tech industrial zones which could prove lucrative development opportunities. In this week’s acquisition, the developer will also gain access to one of the country’s largest sets of large footprint retail properties.
Xu Jiayin Teams Up with Xinjiang’s Richest Man
The investment in Guanghui Group will also put Evergrande boss Xu Jiayin into a partnership with Guanghui’s controlling shareholder, Sun Guangxin, a billionaire who is Xinjiang’s richest man.
Currently markeitng 57 car brands at its 737 dealerships across China, Guanghui is the biggest dealer of BMW cars in the world, and is already expanding its business networks into more than 28 provinces, autonomous regions, and municipalities.
As to the nature of any future cooperation with Guanghui, Evergrande’s statement offered few clues.
“In order to promote better corporate development, the Group will commence full strategic cooperation with Guanghui Group to promote the Company’s development in the areas of vehicle sales, energy, real estate and logistics,” Evergrande’s announcement said.
According to the document Evergrande filed to Hong Kong’s stock exchange on Sunday (23 September), Guanghui Group is principally engaged in the energy, vehicle sales, logistics and real estate businesses and operates across China as well as in various other countries worldwide.
The financial information filed with the exchange showed that the net asset value of Guanghui Group is around RMB 26.964 billion at the end of June this year, while the company reported a net profit after tax of RMB 3.9 billion in last year.
According to the two parties, Evergrande will first transfer RMB 6.68 billion by 28 September to the Guanghui Group for an aggregate of 23.865 percent interest in the Xinjiang-based company. It will later transfer RMB 7.81 billion as additional capital for Guanghui’s expansion, increasing its stake to 40.964 percent.