Shimao Property this week announced a new joint venture that will add 70 projects to the Hong Kong-listed developer’s pipeline.
At a press conference on Monday jointly organised with Fuzhou-based Fusheng Group, the two companies announced that they had established a new platform to develop the struggling Fujian builder’s projects. Media reports indicated that state-owned bad asset bank China Orient Asset Management is also a party to the venture.
Shimao’s initiative with Fusheng is the latest in a series of efforts by the top 10 mainland developer which have added to its land bank, after the Shanghai-based firm in the first half of 2019 invested RMB 20 billion acquiring projects from developers feeling the squeeze of China’s tighter lending conditions.
Pipeline Valued at Up to RMB 400B
At the event on 13 January Shimao Vice Chairman Jason Hui, the son of the company’s founder and chairman Hui Wing Mao said, “This is not an M&A deal, but a cooperation where one plus one is equal to more than two,” according to local media accounts.
Shimao also announced the deal on its WeChat account, however, the parties to the joint venture did not disclose financial details of the project. Jason Hui indicated that more information would be released in March.
A report in mainland news site thepaper.cn, citing sources close to the transaction, indicated that Shimao and Orient Asset Management would each hold 40 percent stakes in the new platform, with Fusheng retaining 20 percent of the equity.
At the event, Hui estimated the current value of Fusheng’s projects at RMB 100 billion, while expressing confidence that the finished developments would be worth from RMB 340 billion to RMB 400 billion.
Fusheng Trips Over Acquisitions
Fusheng, a mid-sized developer from Shimao chairman Hui Wing Mao’s home province of Fujian, found itself entering into the joint venture with its larger competitor this month after following a 2017-2018 expansion plan which turned into a 2019 financial crisis.
Analysts estimate that during 2017 and 2018 Fusheng acquired 107 projects from other developers totalling at least 30 million square metres of finished space. That land bank includes sites in the first tier cities of Shenzhen and Guangzhou, as well as projects in some of China’s leading second tier cities, such as Zhengzhou, Changsha, Wuhan, Tianjin and Fuzhou.
Following its two year acquisition streak, the developer chaired by Pan Weiming set a 2019 sales target of RMB 90 billion. However, company records show that during the period from January through December last year Fusheng achieved just RMB 63 billion in sales, as the real estate industry slowed under tighter lending and policy conditions.
According to the company’s 2019 interim report, as of 30 June last year, Fusheng had short term liabilities of RMB 44.3 billion, with cash on hand of just RMB 7.3 billion, with some of that amount already restricted.
During 2019 Fusheng’s creditors, including shadow banks which had provided the developer with high interest short term loans that enabled its project acquisitions, were reported to have sued the Fujian company for overdue payments resulting in the developer’s assets being frozen.
Applications by the company for bankrupty were reportedly rejected by mainland courts, and Fusheng was forced to lay off as much as 50 percent of its staff, according to media accounts.
Shimao Deal-Making Continues
In 2019 Shimao returned to the ranks of China’s top 10 developers, thanks in part to its strategy of growth through acquisitions.
According to company announcements, the developer achieved contracted sales of approximately RMB 260 billion last year – an increase of 48 percent over its 2018 total. That increase was helped along by Shimao’s RMB 20 billlion in project acquisitions from competitors during the year, which according to public data, added five million square metres of saleable area to its pipeline in 2019.
During last year Shimao acquired multiple projects from Guangzhou Yuetai Group, as well as from luxury developer Tahoe Group. With Tahoe facing deadlines to repay multiple offshore bond issues at during June last year, Shimao acquired whole or partial stakes in at least four developments from the Shenzhen-listed builder between March and June of 2019.