Sunac Moves Forward on RMB 4.4B Deal to Acquire 7 Mainland Projects

Real estate developer Sunac China Holdings is asking for shareholder approval on a RMB 4.4 billion ($663 million) deal to acquire seven projects in six Chinese cities, including developments in Shanghai, Hangzhou and Shenzhen, from Hong Kong-based competitor Top Spring International Holdings.

In a statement to the Hong Kong stock exchange on Friday, Sunac submitted a framework agreement for the acquisition for consideration by its shareholders at an extraordinary general meeting to be held on August 16^th. A preliminary agreement between Sunac and Topspring had been signed in May this year.

The package of new properties provides the developer with a pipeline of projects, and a path forward, as founder Sun Hongbin hopes to finally realise his dream of making Sunac into one of China’s top developers. With China’s real estate industry beset by rising land costs, the country’s government has been encouraging consolidation and state-run companies have increasingly used their superior access to credit to squeeze smaller competitors.

Sunac Acquires Pipeline in Major Chinese Cities

In an earlier statement to the exchange, Sun Hongbin had explained that the acquisition will “enable Sunac Group to enter into the Shenzhen property market, which has good long term prospects and huge development potentials.” The company also praised the access that the deal with Top Spring will give Sunac to other key Chinese markets.

Home prices in Shenzhen have risen more than 47 percent in the last year, according to the latest government figures, and developers have been competing to acquire sites in the booming southern Chinese city.

The seven new projects come in addition to the RMB 25 billion that Sunac spent on acquiring approximately 12.6 million million square metres of new sites during the six months ending March 30^th of this year.

The Tianjin-based developer has been scrambling to acquire new sites since its failed 2014 HK$6.3 billion ($812 million) takeover of competitor Greentown China frustrated Sun’s attempt to move Sunac into China’s top ten developers. In 2015 Sunac struck out again when it attempted to acquire Shenzhen’s Kaisa Group Holdings when that developer was threatened with bankruptcy after defaulting on credit obligations.

Top Spring explained in an earlier announcement that the sale of the seven projects will enable it to “free up capital for its operations and any potential new investment opportunities that may arise in the future,” as well as allowing it to reduce debt. Top Spring has recently turned its attention to investment opportunities overseas, with the developer last year joining with Singapore’s Metro Holdings and Scarborough Group of the UK to undertake a £730 million ($966 million) project in northern England.

Expanding Through Acquisitions Becomes a Thing

As competition for sites in China’s largest cities has increased during this most recent recovery in the real estate market, some Chinese developers have been acquiring land from competitors as an alternative way to fuel growth.

“Acquiring land through M&As could also accelerate project sales and cash flow generation if those acquired projects have already received the relevant approvals or are under development,” noted Moody’s Vice President Kaven Tsang in a recent statement.

Sun said earlier this year that prices for land at auction had risen to “absurd” levels in China, and even before the Top Spring deal, Sunac had ranked among the ten most prolific purchasers of sites from other developers this year.

Hong Kong developers such as Top Spring have been among the biggest sellers of projects in the past year with Evergrande Real Estate buying $5.3 billion in mainland projects from Hong Kong’s New World Group last year, and several more projects in Chengdu and Chongqing from Hong Kong-based Chinese Estates.