Sunac shares soar after it quit plans to buy Wanda’s hotel assets

Share prices of Sunac China Holdings and Guangzhou R&F Properties, the original and new buyers of Wanda Group’s hotel assets, surged on Thursday.

Sunac China’s Hong Kong-traded stock surged as much as 18 per cent in the morning, before scaling back to close 14.2 per cent up at HK$19.64.

R&F gained 6.8 per cent to close at HK$13.80, while those of Wanda Hotel Development, the Hong Kong-listed unit of Wanda Group, also gained 6.5 per cent to 82 HK cents.

In a last-minute twist on Wednesday, R&F, one of the nation’s top 20 developers by contracted sales, agreed to pay 19.9 billion yuan ($2.9 billion) for the hotels.

This allowed Sunac to scale back the original acquisition deal to 43.8 billion yuan for a 91-per cent stake in 13 tourism-related projects including theme parks. But the lowered price without the hotel assets still represented a 48 per cent increase over the original 29.6 billion yuan price tag for the 91-per cent stake.

Sunac – one of the most indebted developers – announced 10 days earlier it would pay 63.7 billion for the hotels and tourism related projects, before it was revealed that it was being scrutinised by Chinese banking regulators.

In its defence on Tuesday afternoon, Sunac said the Chinese banks had initiated the investigation and were not acting on any government order.

It is unclear whether the probe led to chairman Sun Hongbin’s decision to scale back on the acquisition, which also involved a 29.6 billion yuan loan.

“The market has turned more positive towards Sunac after its scaleback,” said Carol Wu, a China property analyst with DBS Vickers.

“But it is still hard to say if concerns over Sunac’s debt issue had diffused, as after all the company’s aggressive nature has not changed, and the assets that Sunac are buying from Wanda are hugely indebted,” she said, referring to the 45.4 billion yuan debt in the Wanda asset portfolio.

Still, Sunac’s current price of HK$19.94 a share is a historic high and a big jump from the previous peak of HK$17.38 last Monday.

Investors’ revived interests would stemmed from the reduced deal size, despite the 48 per cent increase in price for the tourism-related projects, which would translate into an additional 285 yuan for every square metre of land.

Sunac would be acquiring nearly 50 million sq m of sellable floor space according to details released last week, without having to absorbing the less liquid, low-yielding hotel assets.

The 19.9 billion yuan that R&F would pay for the 77 Wanda hotels represented a 40 per cent discount, and 850,000 yuan per hotel room.

The 77 hotels will add to R&F’s existing 24 hotels, making it the world’s largest owner of five-star hotels.

But Bocom International estimated in a report on Thursday that even with such a low price, initial annual yield would be just 4.4 per cent, considering the average profit for hotel owners worldwide .

“We maintained a neutral position on R&F’s acquisition, as it would incur heavy debt for the company, and short-term profit rise is negligible,” the report said.

DBS Vickers’ Wu said R&F’s expertise in running hotels was limited, given that it outsourced the management of its existing hotels to international hotel management companies.

Morgan Stanley analysts wrote in a note on Wednesday that the revised terms favoured Sunac more than R&F as they will boost the former’s net asset value accretion on the deal to 79.5 billion from 61 billion yuan.