Mainland developer China Resources Land has signed an agreement to borrow RMB 23 billion ($3.6 billion) from China Merchants Bank to finance property acquisitions, as Beijing adopts a strategy of using state-owned companies to rescue the country’s embattled real estate sector.
The bank controlled by state-owned China Merchants Group will provide RMB 20 billion to the mainland’s eighth-largest developer by contracted sales — itself a subsidiary of state-backed conglomerate China Resources — and RMB 3 billion to property management unit China Resources Mixc Lifestyle Services, according to a statement released Wednesday.
Under the strategic cooperation agreement, the bank’s financing facility for China Resources Land will go towards M&A loans, M&A funds, asset securities and various financing products based on M&A-related business needs.
China Resources Mixc Lifestyle announced to the Hong Kong exchange last week that it would acquire a local competitor run by Jiangsu Zhongnan Group for up to RMB 2.26 billion and on 5 January said in a separate announcement to the bourse that it would purchase the property management operations of developer Yuzhou Group Holdings for up to RMB 1.06 billion.
The past week saw a flurry of dealmaking involving Chinese state-controlled entities stepping in to acquire assets from mainland developers.
Shanghai-based Shimao announced last Friday that it would sell an office project on the North Bund in the megacity’s Hongkou district to state-owned enterprise Shanghai Jiushi for RMB 1.06 billion ($170 million). The developer had paid RMB 1.38 billion back in 2002 for the site, which sits adjacent to Shimao’s Hyatt on the Bund hotel.
Also Friday, state-backed China Overseas Land & Investment disclosed an agreement to buy out Shimao’s and Agile Group’s respective stakes of 26.67 and 26.66 percent in their Guangzhou development joint venture with COLI for a combined RMB 3.7 billion ($580 million). The JV’s principal asset is a mixed-use residential and commercial complex called Guangzhou Asian Games City.
Then on Thursday of this week, two state-owned enterprises, developer China Poly Group and China Construction Bank, announced in a WeChat post that they had signed a strategic cooperation agreement to develop affordable rental housing in Beijing.
Government to the Rescue
The Chinese government’s aim to intervene in the property crisis came into full view in December when China Evergrande, the world’s most indebted developer, established a “risk management committee” featuring officials from the Guangdong provincial government and mainland state-owned enterprises.
The cleanup of Evergrande’s more than $300 billion debt pile appears to be moving along the same lines as the state-directed restructuring of failed conglomerate HNA Group, which filed for bankruptcy in early 2021 after racking up debts reported to total $170 billion.
In the case of HNA, the government of its home province of Hainan in early 2020 took control of the debt-saddled conglomerate by sending in a task force led by two state officials appointed to leadership roles on the company’s board after management repeatedly defaulted on financial obligations and creditors began seizing assets.