Chinese insurers circle beaten down property developers
Battle for control of Gemdale between Sino Life and Anbang heats up as real estate slump lures cash-rich mainland insurance companies
A takeover war for a mainland developer has sent the industry scurrying for cover as cash-rich insurance companies circle amid the continuous slide in property stocks.
Developers are keenly watching the battle between Sino Life Insurance and Anbang Insurance for control of Gemdale for clues to this emerging threat.
Both insurers have increased their voting stakes in the Shanghai-listed developer through a series of secondary-market purchases.
As of April 26, Sino Life owned 20 per cent of Gemdale while Anbang had 15 per cent. Both stakes far exceed the stake held by Shenzhen Futian Investment, initially the top stakeholder.
The two bidders have the option of raising their stakes to the regulatory ceiling of 30 per cent.
Meanwhile, the buying spree has pushed up the price of Gemdale's shares to 7.85 yuan (HK$9.75), an increase of 35 per cent from this year's trough on January 13. The stock hit a high of 10.22 yuan on April 25, putting it well above its battered peers.
Sino Life and Anbang have each nominated a director to sit on Gemdale's board, which was re-elected on April 28. The top management team, led by chairman Ling Ke, has so far remained largely unchanged.
"Insurance companies are chasing undervalued property stocks in both mainland and Hong Kong markets," said Edison Bian, the research head of China property at UOB Kay Hian.
China Life Insurance, the country's biggest insurer, is now the largest shareholder of Sino-Ocean Land, a major developer based in Beijing.
Indices tracking top property stocks have fallen 6.1 per cent in Shanghai and 6.6 per cent in Hong Kong this year as the sector cooled in step with a slowdown in the mainland economy.
After Gemdale, insurers turned their sights on other developers, including Financial Street, the biggest owner in Beijing's western central business district that is home to most of the country's top financial firms and regulators.
Also in the cross hairs was China Vanke, said industry analysts, as the mainland's biggest developer by sales has a dispersed shareholding structure like Gemdale, with professional managers in charge of the firm's day-to-day operations.
"According to calculations by [Vanke chief executive] Yu Liang, one can gain control of Vanke with 30 billion yuan," Ding Zuyu, a co-president of property services company E-House (China), said in an online column last week. "It's a pretty good deal to control the world's biggest developer with US$5 billion."
Vanke's top management team and its biggest shareholder China Resources have been raising their stakes since the beginning of this year in what is seen as a defensive move. China Resources held a 14.73 per cent of Vanke as of the end of last year.
Other top developers, including Poly Real Estate and Evergrande, are also busy bolting the doors to pre-empt a raid.
Mainland insurers can potentially pour up to 2.7 trillion yuan into the real estate sector, including property stocks and non-residential physical assets.
"Insurance companies in China remain in the stage of asset-managing their existing portfolios. The investment function is generally unclear within this structure," said Simon Lo, an executive director of Asian research and advisory services at global consultancy Colliers International.
"They are increasing their stakes in listed real estate companies by simply taking advantage of the falling share prices.
"They see this as a good opportunity to increase their real estate weighting in the overall portfolio."