Ping An Ups CFLD Stake to 20% for $2B as Developers Scramble for Cash

A unit of Chinese financial giant Ping An is acquiring almost a fifth of China Fortune Land Development (CFLD) in the group’s third major acquisition of a stake in a top publicly listed developer in the last three years.

The RMB 13.8 billion ($2.0 billion) investment by Ping An Asset Management was revealed in an announcement to the Shanghai stock exchange by CFLD, and follows a 50 percent decline in the share price of China’s ninth largest developer by sales over the the last five months.

The slide in the Beijing-based developer’s stock price, and Ping An’s investment, come as China tightens credit for developers and dampens the housing market through tighter enforcement of home purchase restrictions — a combination that is putting pressure on the country’s multi-billion dollar real estate industry.

Ping An Becomes CFLD’s Second-Largest Shareholder

Ping An Asset Management’s RMB 13.8 billion purchase gives it an additional 19.7 percent of CFLD, adding to a 0.18 percent share that it already held. The deal makes Ping An the second largest shareholder in the company after China Fortune Land Development Holding, which reduces its stake from 61.7 percent to 42.7 percent after the transaction.

Just under one year ago Ping An Asset Management paid HK$1.9 billion ($240 million) to purchase 545 million new shares in CIFI Holdings, bringing its stake in the Hong Kong-listed developer to approximately 10 percent and making it the fourth largest shareholder after the company’s founders. In 2015 Ping An Insurance invested HK$6.3 billion in new shares in Country Garden Holdings, now China’s biggest developer by sales, at a time when the country’s developers were grappling with a shortage of both customers and funds caused by an earlier set of policy restrictions.

The share sale takes place after CFLD enjoyed a happy 2017, with net profits up by 35.25 percent last year while sales volumes rose 26.50 percent. CFLD issued $500 million of offshore bonds in late 2017 and RMB1.5 billion of short-term securities in early 2018, while Fitch reaffirmed the company’s BB+ rating in June 2018, with a stable outlook.

The property developer hopes the relationship with Ping An will help it improve its corporate governance, competitiveness and earnings ability, according to a Reuters report.

Ping An Pounces as Credit Tightens

Ping An’s investment occurs as many Chinese developers could use a friend with deep pockets.

The National Development and Reform Commission, China’s top planning body, said last month that it would ban new offshore bond issues by developers, except for refinancing maturing debt, or in cases where new credit was necessary to avoid a default, a move that is already raising concerns with analysts. Approvals for domestic developer bonds had already ground to a halt last year.

“Chinese developers continue to face tight liquidity amid strict onshore credit conditions,” Celine Yang, an assistant vice president and analyst with Moody’s Investors Service said in a note last month, adding “but we expect most of our rated developers will be able to refinance their upcoming bond maturities.”

Just since June 28th, officials from China’s Ministry of Housing and Urban-Rural development have carried out spot inspections in 30 mainland cities, checking for adherence to limits on mortgage lending and to ensure enforcement of rules on multiple home purchases. The crackdown, which happens at the same time that developers have found their credit reduced, is part of a market tightening that has put mainland home sales at levels at least five percent below those achieved in 2017.

Just last week, China Orient Asset Management, one of China’s four big “bad asset banks” predicted that the value of bad loans to the country’s real estate industry will increase by at least 20 percent this year.