New World Development

Developer Evergrande tops Chinese businesses taking assets off Hong Kong tycoons

PUBLISHED : Tuesday, 29 December, 2015, 8:34pm
UPDATED : Thursday, 13 July, 2017, 8:25am

Chinese developer Evergrande Real Estate on Tuesday announced it is buying five projects from Hong Kong tycoon Cheng Yu-tung’s New World Development Group and Chow Tai Fook Enterprises for 20.4 billion yuan (HK$24.4 billion), in the latest instance of cash-rich mainland investors buying assets off Hong Kong tycoons.

Earlier this month, Cheng’s New World Land China sold three projects in Hubei, Guangdong and Hainan provinces for HK$16.36 billion to Evergrande, which has spent more than HK$70 billion on assets of Hong Kong businesses. Last month it bought Mass Mutual Tower office building in Wan Chai from billionaire Joseph Lau’s Chinese Estates for HK$12.5 billion.

On Monday, mainland developer Fantasia Holding announced it had acquired Hong Kong-based leading travel company Morning Star Group for an undisclosed amount. Morning Star Travel has been in operation for over 43 years and is one of the leading travel agencies in Hong Kong.

READ MORE: New World China Land sells three projects in China to Evergrande for HK$16.36 billion

Insurer Anbang this month agreed to buy Hong Kong-based Nan Fung Group’s 20.5 per cent stake in mainland developer Sino Ocean Land for HK$7.8 billion. In another high-profile property acquisition by a mainland insurer, China Life Insurance (Group) last month said it would buy an office-retail property in Hung Hom from Wheelock & Co for HK$5.85 billion, in the largest single office space deal in the Kowloon district ever.

“It again shows (mainland) Chinese firms are flush with cash. With lower funding costs afforded by the domestic bond market, they have built up a war chest to finance their acquisition binge,” said Alfred Lau, a property analyst at Bocom International.

Funding cost on the mainland ranges from 3 to 4 per cent a year compared with 7 to 10 per cent earlier, Lau added. “The trend of mainland companies purchasing assets from Hong Kong investors will continue.”

In Evergrande’s latest deal, it is acquiring five developments located in Shanghai, Beijing, Qingdao, Chengdu and Guiyang – three from Chow Tai Fook and two from New World Land China, both controlled by Cheng.

Evergrande, which is highly geared, will only need to pay 10 billion yuan in cash for the deal while the rest will be paid through issuing equity to the two companies.

Hong Kong investors are increasingly selling projects in inner cities, which require strong connections with local governments, said Phillip Capital Management fund manager Li Kwok-suen.

“It has become difficult for Hong Kong developers to maintain their market share in China given the competition amid the oversupply of homes there,” he said.

Guangdong-based Evergrade, owned by mainland billionaire Hui Ka Yan, has built up strong ties with Hong Kong billionaires, especially Cheng. In 2008, Cheng took a stake in Evergrande when it was facing a cash crunch. That helped Evergrande’s successful listing in Hong Kong.

“Evergrande is trying to scale up its annual sales to 200 billion yuan and has the know-how to sell properties in second- and third-tier cities,” said David Hong, head of research at China Real Estate Information Corp, adding that it is a win-win deal to both New World Development and Evergrande.

Evergrande recently issued convertible bonds to finance the purchase of Mass Mutual Tower and Cheng was its biggest subscriber.

Evergrande last year ranked only after Vanke among mainland developers in terms of sales.