Lenovo sells property asset to Sunac subsidiary for 1.6bn yuan

Sale follows others by parent Legend Holdings, which recently sold 42 property projects spread across 16 mainland cities to Sunac for 13.8bn yuan

PUBLISHED : Thursday, 02 March, 2017, 3:56pm
UPDATED : Thursday, 02 March, 2017, 11:00pm

Lenovo Group, the world’s largest personal computer supplier, is selling its stake in a mainland property developer to a subsidiary of real estate giant Sunac China Holdings for 1.6 billion yuan (US$232 million).

It marks Lenovo’s latest property divestment after selling two of its office buildings in Beijing in the six months to September, when it booked total gains worth US$335 million.

The disposal also followed Lenovo parent Legend Holdings’ exit from the real estate development business in September, when it sold 42 property projects spread across 16 mainland cities to Sunac for 13.8 billion yuan.

In a filing to the Hong Kong stock exchange on Thursday, Lenovo chairman and chief executive Yang Yuanqing said the company will dispose of its 49 per cent equity interest in Chengdu Lian Chuang Rong Jin Investment to Beijing Sunac Raycom Real Estate Company.

Yang said about 264 million yuan in undistributed profits of Lian Chuang Rong Jin as of December 31 will be issued to Lenovo prior to the completion of the sale.

The principal development projects being undertaken by Lian Chuang Rong Jin are Hefei Raycom City in Anhui province and Wuhan Raycom Celestial Heights in Hubei province.

Lenovo estimated its pre-tax gain from the transaction would total HK$1.7 billion.

“The disposal will provide general working capital to finance the company’s operations and investments,” Yang said.

Lenovo last month reported weak earnings for the quarter ended December 31 because its three main lines of business recorded slow to no growth at all.

The company posted a 67 per cent year-on-year drop in net profit to U$98 million in its fiscal third quarter to December, as sales of smartphones and data centre systems stagnated.

Revenue declined 3 per cent year-on-year to US$12.17 billion.

“We expect Lenovo’s personal computer business to remain solid, but are becoming increasingly concerned over the progress of margin recovery in both its mobile and data centre divisions over the coming one to two quarters,” Daiwa Capital Markets analyst Steven Tseng said in a recent report. Daiwa had downgraded Lenovo shares to “hold” from an “outperform” rating, with a target price of HK$4.80.

The deal with Lenovo continued the buying spree of Sunac, mainland China’s fifth-largest private property developer, which forged 13 deals totalling 22.8 billion yuan last year, according to a survey of public data.

Sunac, however, seized plenty of headlines in January when it extended a life line to Chinese entrepreneur Jia Yueting’s cash-strapped LeEco empire by providing 15 billion yuan in fresh funding and investments.

The Tianjin-based company acquired an 8.61 per cent stake in Leshi Internet Information & Technology, LeEco’s video streaming business, for about 6 billion yuan, as well as a 15 per cent interest in LeEco’s film production unit, Le Vision Pictures, for about 1 billion yuan.

In addition, Sunac bought a 33.5 per cent stake in LeEco’s television hardware subsidiary Leshi Zhixin Electronic Technology for 7.9 billion yuan.

“The company believes that the investment will bring better return on capital and will provide greater room for cooperation with Leshi in the field of industrial real estate, and also bring continued benefits for further growth of Sunac’s property business,” Sunac chairman Sun Hongbin said in a statement at the time.