Sunac China Holdings has acquired a set of three projects from financially troubled mainland competitor Xinhu Zhongbao (600208.SH), adding one million square metres (10.8 million square feet) to its land bank, as the developer continues to ramp up its project pipeline.
In the transaction, China’s fifth largest developer by contracted sales is paying its Shanghai-listed rival RMB 6.7 billion ($970 million) to take over majority stakes in three residential developments — one in Shanghai, as well as one each in Jiangsu and Zhejiang provinces — as Sunac pursues its preferred M&A path to land acquisition.
Combined, the sale of the three projects, which was revealed to the Shanghai Stock Exchange by Xinhu Zhongbao, set up Sun Hongbin’s Tianjin-based firm to sell over two million square metres of homes in the Yangtze River Delta as the developments progress towards completion.
Sunac Adds Trio of Yangtze River Delta Projects
Under the terms of the agreement, Sunac Holdings is buying a majority stake in two of Xinhu Zhongbao’s subsidiaries, giving the property giant control of plots in Wenzhou’s Pingyang County, Qidong city and Shanghai’s Hongkou district.
The Shanghai project is at 167 Qingyun Road in Hongkou district, and has a site area of 23,600 square metres that can be developed into as much as 70,000 square metres of new homes.
The second, and largest, of the three sites is in Pingyang County in the Zhejiang province city of Wenzhou and has a combined land area of 656,800 square metres over 15 plots that can be developed into as much as 1.5 million square metres of new homes.
The developer will also be acquiring a site assembled from four residential plots located in Yuantuojiao Township, in Qidong, a tourist area in eastern Jiangsu province, just north of Shanghai’s Chongming Island, that cover a combined 307,400 square meters, and have the potential for construction of up to 521,400 square metres of housing.
Under the terms of the agreement, Xinhu Zhongbao will retain a 9.9 percent stake in the two companies holding the trio of projects, but will have no rights or interests in the projects held by Wenzhou or Qidong.
The deal calls for Sunac and Xinhu Zhongbao to take an equal share of any profits after tax for the Shanghai project if the average sale price of the units is more than RMB 120,000 per square metre.
Sunac Takes Over Assets From Debt-Laden Firm
In return for adding the projects to its pipeline, Sunac is paying Xinhu Zhongbao a total of RMB 6.7 billion, including RMB 500 million in cash for its stake in Zhejiang Ouling Industry, which holds the Wenzhou and Qidong projects and RMB 377 million for the shares in Mabao Real Estate Development which holds the Hongkou development. The remainder of the consideration value will come from Sunac taking responsibility for RMB 5.8 billion in liabilities associated with the projects.
Just last month, ratings agency Moody’s had predicted that Xinhu Zhongbao’s cash holdings of RMB 16 billion would be insufficient to cover its debts of RMB 28.3 billion coming due over the next 12 months.
Xinhu Zhongbao said in a statement that, following the deal, the two subsidiaries would fully cooperate with Sunac Holdings in the management of their developments and businesses.
RMB 19B in Acquisitions in One Month
The acquisition of Xinhu Zhongbao’s projects continues Sunac’s trend of buying projects through mergers and acquisitions, and follows a string of transactions by Tianjin-headquartered Sunac Holdings in April that saw the company pay a combined RMB 19 billion for land.
The property giant spent RMB 15.2 billion on 23 April on four residential and mixed-use plots in Wuhan with a combined land area of 1.62 million square metres.
This followed the acquisition on 3 April of two plots in Wuxi, a city in eastern Jiangsu, which saw the developer pay a combined RMB 2.4B for 117,697 square metres of land.
The day before, Sunac Holdings agreed to buy a 70 percent stake in developer Sunshine City in return for a pair of projects in Chongqing’s Nan’an district from troubled developer Sunshine City, paying a combined RMB 1.33 billion for combined 670,000 square metres of land.
The developer took a project off the hands of another distressed competitor six months ago when it bought two mixed-use projects in Shanghai and Beijing from China Oceanwide Holdings in a deal valued at RMB 12.55 billion.