Evergrande and Tencent Hope New O2O Venture Will Rival Alibaba

China’s rapidly growing ecommerce market and the rage for O2O helped make Alibaba’s $25 billion 2014 IPO the world’s largest ever. Now two other top brands in China, Evergrande Real Estate and Internet giant Tencent, seem to be looking to capture some of that same investor enthusiasm for the launch of their own O2O venture.

In a joint announcement on Saturday the two companies predicted that the new O2O joint venture, Mascotte Holdings, could give birth to a new Internet giant to join the ranks of China’s Baidu, Alibaba and event Tencent itself. The two companies formed the cooperative effort by buying up 75 percent of the existing shares of Hong Kong-listed Mascotte, effectively forming a new business and getting it listed on the Hong Kong stock exchange in a single transaction.

The company has a business plan for providing property management services over the Internet. However, due to the vaguely defined nature of the new company and the backdoor approach to achieving its listing, some analysts are already speculating that the venture may be aimed as much at leveraging ongoing investor hunger for China-related tech shares, as it is at building a new business.

Evergrande has launched several ventures in new business areas over the last two years, and including Mascotte, has now moved to list four of these new businesses on public exchanges in Hong Kong and on the mainland since the beginning of July.

Turning a Solar Producer into an O2O Provider

Evergrande and Tencent took over Mascotte on June 15th, when the two companies agreed to buy 75 percent of the Hong Kong-listed firm’s stock for a combined HK$750.7 million ($96.8 million). Evergrande took up 55 percent of Mascotte’s shares, with Tencent taking another 20 percent. The remaining 25 percent will be publicly traded. The transaction was completed on July 31st.

While Mascotte’s website says that the company produces solar grade polysilicon, Evergrande and Tencent indicated that under their new management, Mascotte would ‘create an “internet + community service” ecosphere.’

In a statement to the stock exchange, Mascotte’s new owners said that they have a 12-month business plan for setting up a new Internet community platform aimed at bringing property management services to Evergrande’s existing client base. This service platform, which is aimed at providing ordering, logistical arrangement and delivery of products or services, might later be expanded to clients nationwide.

In a press release, the companies indicated that their new cooperation will cross Tencent’s mobile Internet, cloud computing and big data abilities with Evergrande’s expertise in traditional industries to “completely change the face of traditional community service.”

China’s government announced “Internet +” earlier this year as a new strategy for bringing online innovation to traditional businesses. In a speech to the National People’s Congress early this year, Premier Li Keqiang said, “We will develop the “Internet Plus” action plan to integrate mobile Internet, cloud computing big data, and the Internet of Things with modern manufacturing, to encourage the healthy development of e-commerce, industrial networks, and Internet banking, and to get Internet-based companies to increase their presence in the international market.”

Since that time many Chinese companies, including Evergrande and Dalian Wanda, have used the new mainland buzzword in their announcements and statements as a way to both show their alignment with central government initiatives, and to add some online sizzle to their businesses.

Tencent has also taken advantage of the growing desire of China’s old economy giants to go online by creating an O2O joint venture last year with Dalian Wanda and Baidu. Evergrande’s only other previous tie-up with a China Internet giant came when its boss Xu Jiayin, enticed Alibaba chairman Jack Ma to become its partner in the Guangzhou Evergrande soccer club, which was subsequently renamed Guangzhou Evergrande Taobao Football Club.

For Evergrande and Tencent, the two companies expressed the hope that their new venture could take advantage of a “blue ocean” property management market which could reach RMB 1 trillion in value and create the next “BAT giant.” BAT is the local Chinese expression for China’s big three Internet companies, Baidu, Alibaba and Tencent.

Riding a China Tech Market Wave

The vague outlook for the new business, combined with the backdoor approach to achieving the Hong Kong listing has led many market analysts to tag the new venture as an effort to take advantage of Hong Kong’s bull market.

There is potential for both Tencent and Evergrande to inject some of their newer business lines into the listed company in an attempt to generate investor enthusiasm and turn early stage ventures into fund-raising opportunities.

Late last month Evergrande had its application approved to list its bottled water business, Evergrande Spring, on China’s New Third Board, an exchange designed for listing startup firms. The company’s applications to list Evergrande Culture Industry Group, which owns its chain of movie theatres; and Guangzhou Evergrande Taobao Football Club, its soccer team; on the same exchange were approved earlier in July.