Ping An to buy about 14 per cent stake in Chinese green developer Landsea
Chinese property shares cheap valuation attracts cash-rich insurers
Landsea Green Properties, a Hong Kong-listed mainland China developer, announced on Thursday it will raise HK$340 million in net by selling new shares and perpetual securities to a subsidiary of Ping An Insurance Group, in the latest tie-up between the country’s cash-rich insurers and developers that are seeking cheaper funds to finance their expansion.
With that, Ping An Real Estate will become the second-largest shareholder with a stake of 14.4 per cent, while Landsea’s mainland parent Landsea Group will lower its holding to 63.5 per cent from the current 74.1 per cent.
The company’s chairman Tian Ming, who controls 29 per cent of Landsea Group, told South China Morning Post: “We will explore joint investment opportunities both in China and overseas, including Hong Kong, the United States and Europe, in residential and non-residential sectors.”
They have already worked together on three residential property projects in Nanjing, where Landsea is based, and another in Chengdu.
The two sides said in a statement they would also strengthen cooperation in mezzanine financing and other financial services, without going into details.
They added the upgrade of their partnership to shareholding level from the project level shows Ping An Real Estate’s recognition of Landsea as a leading developer specialised in green technologies and its strategy to go asset light, charging commissions by deploying these technologies to help other developers. That will allow Landsea to share much higher profit from the projects it operate than its equity commitment.
Demand for green technologies at homes is rising as Chinese households become more aware of heavy pollution and care more about their own health, which put Landsea above many rivals in terms of where it should head when the whole sector is reconsidering strategies to survive an expected slowdown in the next decade.
However, Landsea’s shares, as the whole sector, are suffering from investors’ worries about China’s slowing economic growth and overcapacity in the real estate industry.
A report by Jefferies on Tuesday showed Chinese property stocks under its coverage are trading at a 37 per cent discount to their net asset value on a weighted average basis, compared with historical average of a 36 per cent discount.
Landsea shares closed up 4.2 per cent yesterday at HK$0.75, after it priced the 327,002,604 new shares to be sold to Ping An Real Estate at HK$0.6529. Another 173,148,641 perpetual securities will also be sold, with initial conversion price of HK$0.7508. The securities will pay 7.5 per cent per annum in the first three years and 13.5 per cent thereafter.
The property shares’ cheap valuation has given Chinese insurers a good opportunity to increase their exposure to a sector that in the long run will help improve their investment yield while matching their liabilities. China relaxed rules in 2012 allowing insurers to invest more through various channels in the real estate sector, both onshore and offshore.
Chinese insurers had 10.4 trillion yuan of capital under management as of the end of September, with 34.8 per cent in bonds, 24.5 per cent in bank deposits and only 13.2 per cent in stocks and securities, according to official data.
After a slow start, such deals exploded in the past two years, led by China Life and Ping An, respectively the country’s No 1 and No 2 insurers.
Ping An Insurance Group is also the second-largest shareholder of Country Garden, China’s No 7 developer in terms of sales in the first 10 months, acquiring 9.9 per cent stake in April at HK$6.3 billion.
In June, another insurer New China Life Insurance Co bought 9.5 per cent of developer China Jinmao Holdings.
Small rival Qianhai Life Insurance made a buzz in the past few months, by taking on a big target, China Vanke, the country’s biggest developer in sales.