23 September 2018

Vanke hints at real reason it’s banking on Huishang

Chinese realty juggernaut Vanke (000002.CN, 200002.CN) confirmed last week that it will play a key role in Huishang Bank’s {徽商銀行} (03698.HK) initial public offering.

The Economic Observer said it just took less than a month for Vanke to decide to be the lender’s second-largest stakeholder, signing up for 8.28 percent of the bank for a 2.7 billion yuan (US$440 million) outlay

Some analysts speculate the move is about financing, but that may not be the true picture as credit is probably Vanke’s last concern; the developer is rolling in more than 37 billion yuan in cash reserves and has a gearing of just 41.53 percent, according to its third-quarter report.

Vanke president Yu Liang {郁亮} may have revealed his true intention behind the purchase with his prediction that China’s housing boom will culminate in a 10 trillion yuan market within just a decade, but there will be a “glass ceiling” after the peak.

With that assessment, Yu has lost no time transforming Vanke into a service provider to millions of property owners of the firm’s numerous residential estates across the nation.

Not satisfied with just one-off sales of homes, Vanke is looking to do some long-term business with the buyers, many of whom belong to the emerging middle class. High value-added offerings like tailor-made community financial services will certainly feature in Vanke’s blueprint to become an integrated service vendor.

Vanke doesn’t spell out in detail how it will team up with Huishang to cater to the demand in its communities, but forerunners offer hints. Xinhua reports that Minsheng Bank (01988.HK, 600016.CN) aims to operate convenience store-like minibanks in a number of private housing estates in Beijing. One of the bank’s senior executives revealed that individual clients would be granted different loan amounts based on the unit price of their homes. “If the price is 50,000 yuan per square meter, no collateral is required,” the executive said. The bank held a summit on community financial services in July and Vanke was represented at the gathering, suggesting the firm might have caught some hints.

All in all, Huishang is a good bet for Vanke because the commercial lender’s smaller size means the property developer will be able to have a bigger say over operations.

– Contact the writer at [email protected] 



EJ Insight writer

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