China Overseas Land to buy CITIC property in $4.8b deal

Photo: Reuters

China Overseas Land & Investment is buying the residential real estate business of conglomerate CITIC for 31 billion yuan ($4.8 billion) as the state-owned property developer moves to secure land amid their rising prices.

China Overseas Land is paying for the deal by issuing HK$29.7 billion ($3.8 billion) worth of new shares while the remainder would be paid by transferring 6.15 billion yuan worth of property portfolios to CITIC, the developer said in a securities filing to the Hong Kong stock exchange on Monday.

The deal, which is subject to shareholder and regulatory approval, will free up CITIC to focus on commercial property, the conglomerate said. After its completion, CITIC will become China Overseas Land’s second-largest shareholder with about a 10 percent stake.

Chinese real estate developers are acquiring more land outside of auctions by purchasing from other companies and through redevelopment as escalating land costs crimp profit margins.

Standard & Poor’s warned last week that competition for land in top-tier cities could intensify, eroding developers’ profit margins.

“If it proceeds, the deal would allow COLI (China Overseas Land) to replenish its land bank apart from public auctions where land prices are rising sharply – hence addressing investors’ concern about COLI’s growth outlook,” Morgan Stanley wrote in a research note.

CITIC Chairman Chang Zhenming said in a statement the deal will enable the company to focus on commercial real estate, particularly large integrated projects. CITIC said it expected to record an HK$9-11 billion gain from the disposal.

As part of the deal, China Overseas Land is issuing 1.095 billion new shares at HK$27.13 apiece, representing a 5.36 percent premium over the stock’s previous closing price.

Senior Chinese officials raised alarm over the country’s overheated housing market during an annual parliament meeting in Beijing last week, throwing the spotlight on a potential bubble forming in parts of the property market.

China Vanke Co , the country’s largest property developer, said in its earnings conference that high prices have spread to outskirts of first-tier cities.

Rattled by a rapid rise in home prices in cities such as Shenzhen and Shanghai, land minister Jiang Daming said China will announce measures to boost land supply.

Shares of CITIC were down 2.6 percent on Monday, while shares of China Overseas Land were up 1.8 percent. The benchmark Hang Seng Index was up 1.2 percent.

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Reuters

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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.