Sunac China has agreed to buy a pair of projects in Shanghai and Beijing from competitor China Oceanwide Holdings in a deal valued at RMB 12.55 billion ($1.85 billion), according to a filing today to the Hong Kong stock exchange.
By picking up the two mixed-use projects, one in Beijing’s Chaoyang district and the other in Shanghai’s Huangpu district, top five developer Sunac is able to add nearly 1.3 million square metres of potential finished space to its pipeline, albeit while adding to one of the industry’s largest debt piles.
The acquisition by Sunac is the Hong Kong-listed builder’s largest since it purchased 13 theme park-based development projects from Dalian Wanda for RMB 43.8 billion in July 2017, and comes during a time when China’s largest developers increasingly dominate the real estate industry as dwindling access to credit makes it more difficult for many players to make progress on projects.
Picking Up Mega-Projects in Shanghai and Beijing
The deal gives Sunac possession of a Beijing site approved for up to 668,500 square metres of finished space, along with a Shanghai project with authorisation for construction of up to 628,000 square metres of gross floor area. In return Sunac is paying approximately RMB 11.18 billion in equity to Oceanwide, and taking on another RMB 3.71 billion in debt.
The site in China’s capital, identified in the announcement as Beijing Oceanwide International Project Land Lot 1, is approved for development of residential, retail, office and hotel space, and is situated adjacent to Chaoyang Park to the east of the city’s East Fourth Ring Road. Construction is said to have recently commenced on the 72,500 square metre site, and sales have yet to commence.
Further south, Oceanwide has given up its first real estate project in Shanghai, a 120,300 square metre site in the Dongjiadu area along the Huangpu river, south of the Bund, after originally acquiring the site in 2002.
The Dongjiadu project is approved for residential and commercial development, and according to the announcement, although the first phase of the project began work in 2015, and is slated for completion in 2020, the majority of the demolition and relocation responsibilities for the project as a whole have not yet been completed. Oceanwide spent 13 years completing the relocation of existing residents and clearing the site for phase one of the project, where homes are currently being marketed for RMB 125,000 per square metre, according to local listings. Demolition and relocation work have not been fully completed for the other two phases, according to the local media.
One of Shanghai’s earliest go-downs, and established well before Western banks built their financial palaces along the Bund some three kilometres north, Dongjiadu had remained a bustling trading and residential ghetto until the last 20 years when the city began demolishing much of the working class housing and dilapidated commercial buildings in the neighbourhood to make way for its South Bund redevelopment project.
Developers Head in Opposite Directions
In an announcement to the Shenzhen stock exchange today, Oceanwide explained that while the project sale significantly reduced the scale of its real estate business, it also allowed the company to pay down its debts and take away cash flow pressure.
The developer noted that, due to the impact of the government’s restrictions on the real estate industry in recent years, the rate at which it could release new homes for sale, particularly in Shanghai and Beijing, had slowed down. Oceanwide went on to explain that the current environment had slowed down its capital turnover rate and reduced liquidity to a point that made it difficult to grow its business.
Tianjin-based Sunac said that the acquisition will help the company by increasing its land bank of quality sites as well as boosting its market share and brand influence in China’s two most prestigious real estate markets.
Sun Hongbin Continues Acquisition Drive
Led by its high-profile chairman Sun Hongbin, Sunac has shown a distinct preference toward expanding through acquisitions, having regularly bought out projects from smaller or less aggressive rivals.
In 2016 Sunac paid RMB 13.7 billion to buy substantial stakes in 42 industrial real estate projects from investment firm Legend Holdings after previously being stymied in attempts to buy out rival developers Greentown China, and later Kaisa Group Holdings.
In 2017 Sunac paid RMB 43.8 billion to purchase 13 entertainment-based projects, including theme parks, residential developments and other tourism assets, from Wang Jianlin’s Dalian Wanda, at a time when Wang’s company was under pressure to reduce debt.
Then last year Sunac spent at least $500 million buying a number of real estate assets in Hainan from distressed investment conglomerate HNA Group.