Date
12 December 2017
A Greentown development in the eastern port city of Ningbo. Greentown has been known over the years for building premium quality homes. Photo: HKEJ
A Greentown development in the eastern port city of Ningbo. Greentown has been known over the years for building premium quality homes. Photo: HKEJ

Ground shifts as Sunac offers to buy Greentown

What a stark difference a deal can show. One party is moving into top gear with a proposed morale-boosting landmark acquisition while the other is making a dismal yet surprising pullback.

The deal in question is Sunac China Holdings’ (01918.HK) offer to buy a 30 percent stake in Greentown China (03900.HK).

Sunac CEO Sun Hongbin is an aggressive realty titan known for a slew of record-setting land purchases in the past years. He’s once again defied the prevailing headwinds as the property market frets about a sector-wide slump.

Greentown chairman Song Weiping is also a real estate major but he has caught the market off-guard with his sudden exit strategy — rumor has it that Song will resign from Greentown’s board after the share sale.

Rarely has the mainland’s housing market seen such a deal between two major listed players, even though the pair have teamed up on a number of joint developments.

The Hong Kong Economic Journal, EJ Insight’s parent publication, reports that analysts are generally bearish about the deal, fearing that Sunac will have to dig deeper into its pocket.

Deutsche Bank puts the cost at HK$7 billion (US$903 million) and notes that Sunac’s net gearing ratio may soar by as much as 40 percentage points from 69 percent now, given that Sunac is smaller as measured by some key indicators like market cap, sales volume and net profit last year.

Many observers also have reservations about Greentown’s continued development should Sunac finally take the Greentown wheel.

What is still a little unclear is Song’s rationale for leaving, especially when Greentown’s financial standing is far better than its worst moments in 2012. That was the year the firm took a battering from Beijing’s tough realty curbs and Wharf Holdings (00004.HK) saved the day with a HK$5.1 billion injection for 35 percent of its shares (including convertible bonds).

Song’s exit has made waves across the sector and some are already saluting him as the godfather of China’s high-end homes.

Not too long ago Song was equally bold as Sun, asserting back in 2008 that he would boost Greentown’s sales volume to 100 billion yuan in four years. He splurged more than 30 billion yuan in a land shopping spree between 2008 and 2009, bringing his firm’s net gearing ratio to 231 percent in 2011.

His unswerving commitment to premium quality has earned Greentown wide recognition in the sector. Under his leadership, Greentown went the extra mile to build dream homes. For instance, National Business Daily revealed that in order to find durable facade materials, Greentown quarried stone in Xinjiang and shipped it to Guangdong for processing, when the cost of doing so was higher than importing the finished product.

Song has survived several rounds of government clampdowns since he founded Greentown two decades ago, so it’s hard to explain his decision to step away when the market is still far away from a genuine crisis. Greentown is also now on a solid footing with last year’s contractual sales reaching a new high of 62.1 billion yuan and net gearing ratio dropping to 61.9 percent — lower than that of Evergrande (03333.HK), Fantasia (01777.HK) and R&F Properties (02777.HK) according to Bloomberg.

One possible explanation is that Song has had a paradigm shift in thinking about China’s housing sector and wants to withdraw before the floor falls beneath him.

– Contact the writer at [email protected] 

SK

EJ Insight writer

EJI Weekly Newsletter

Please click here to unsubscribe