ACQUISITIONS
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China Overseas Land & Investment

China Overseas Land aims to close Citic deal in six months

Property giant beats estimates with 22.5 per cent gain in profit on expanded sales

PUBLISHED : Friday, 18 March, 2016, 9:35pm
UPDATED : Friday, 18 March, 2016, 9:35pm

Property giant China Overseas Land & Investment said it aims to complete the acquisition of assets from Citic, China’s largest state-backed conglomerate, in less than six months as it reported net profit increased 22.5 per cent last year.

The state-owned firm said net profit rose to HK$33.3 billion last year, beating the average estimate for HK$28.9 billion in a Thomson Reuters poll of 25 analysts, helped by expanded sales and the spin-off of its property management business. Revenue grew 6.9 per cent.

At the result briefing on Friday, chairman Hao Jianmin said that as the Citic deal involved asset transfers between the two firms, regulatory approval would take time.

READ MORE: Developer China Overseas Land mulls hedging against yuan weakness

“Most [of the assets] are in first and second-tier cities [in China], so I believe there won’t be any difficulties selling the projects,” Hao added.

In a statement to the Hong Kong stock exchange on Monday, China Overseas said it would buy property assets from Citic for 31 billion yuan. In return, it would issue 1.09 billion new shares at HK$27.13 each, worth a total of HK$29.72 billion, and transfer 6.15 billion yuan worth of property assets to Citic.

Hao declined to say what type of assets would be injected into Citic.

Analysts said the asset restructuring would benefit both companies amid an industry consolidation.

Hao said: “We have seen more merger and acquisition opportunities in the market. Professionalisation is the trend of the industry.”

He added that the deal with Citic would enhance the firm’s financial strength and increase its land reserve in one shot.

In a report this week, Standard & Poor’s said: “The proposed acquisition can significantly broaden [China Overseas’] operating scale and solidify its position as the market leader in China’s property development sector.”

While details remain unclear, Citic will inject almost all of its residential developments into China Overseas.

According to Morgan Stanley’s estimates, about 60 to 70 per cent of Citic’s land bank is in the mainland’s first and second-tier cities, with the remainder in lower-tier ones, mainly in Hainan and Guangdong province.

Without taking into account the impact from the deal, China Overseas has set a sales target of 180 billion yuan for this year, which was what it achieved last year.

We have seen more merger and acquisition opportunities in the market. Professionalisation is the trend of the industry
Hao Jianmin, chairman, China Overseas

Hao expects China’s property market to remain stable this year as the government will issue more policies to improve liquidity and support the sector.

He is optimistic about the company’s outlook, saying it will post double-digit growth in coming years.

The developer slashed its net gearing ratio to 6.8 per cent last year.

The board recommended a final dividend of 41 HK cents per share, bringing the full-year payout to 92 HK cents, up 67.8 per cent from 2014.

Shares of China Overseas inched up 0.38 per cent yesterday to close at HK$26.15.

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