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China Property

China Evergrande offloads its foodstuffs unit for 2.7bn yuan

Company says it wants to refocus on core property development activities, a month after buying 6.82pc stake in Vanke, country’s largest developer

PUBLISHED : Wednesday, 28 September, 2016, 12:40pm
UPDATED : Wednesday, 28 September, 2016, 10:48pm

China Evergrande Group has agreed the sale of its grain and cooking oil, dairy products and spring water businesses for 2.7 billion yuan, and says it now plans to refocus on its core property development activities.

The country’s second largest developer said the disposal includes 3.3 billion yuan of debt, making the total expected gain before tax 5.7 billion yuan, according to its filing to Hong Kong stock exchange, on Wednesday.

“The disposal is being carried out for strategic consideration and will enable the company to focus on property development and other related businesses,” said chairman Hui Ka-yan.

The company has signed five separate agreements with different third-party buyers. Under the agreements, its water unit is being sold for 1.8 billion yuan, its grain and oil venture for 600 million yuan and its dairy business for 300 million yuan. 10 per cent of each payment will be paid soon, with the remainder paid within three years.

Hui’s move comes just a month after it became the third largest shareholder in the country’s largest developer China Vanke, which has been embroiled in an ongoing takeover battle.

In August, Evergrande acquired a 6.82 per cent stake in Vanke for 14.6 billion yuan, marking its entry into the eye-catching corporate tussle, with analysts expecting the developer to further raise its stake.

Carol Wu, China property analyst at DBS Vickers, said it is hard to predict the developer’s next step, as she considers “Evergrande’s strategy has become inconsistent”.

“It said it planned to expand sales of spring water to 30 billion yuan in 2016, but now it is selling it for only 1.8 billion yuan,” she said.

Evergrande only started to diversified into foodstuffs in 2013, in what was then a high-profile strategic transformation, as China’s property market slowed down and developers’ margins were being squeezed.

However, its shift in direction appears to have hit major challenges.

The company revealed its flagship water business, for instance, recorded a hefty loss of nearly 4 billion yuan between November 2013 to May 2015, when Hui applied to spin off the unit in a mainland flotation. The spin-off proposal was later suspended.

The company has also been active in acquisitions in other sectors including banking, insurance and healthcare as part of its diversification strategy.

But this year’s nationwide property boom has now apparently forced the company to rethink its direction again.

The Guangdong-based developer saw its property sales in the first eight months of this year jumped 98 per cent to 233 billion yuan, year on year.

Evergrande shares rose 0.37 per cent in Hong Kong on Wednesday.