Deal will aid conglomerate's asset restructuring, curb subsidiaries' competition
Leading domestic conglomerate CITIC on Monday announced a strategic deal valued at 31 billion yuan ($4.8 billion) with China Overseas Land & Investment (COLI), a Hong Kong-listed subsidiary of China State Construction Engineering Corp, showcasing the restructuring of State-owned assets.
CITIC announced plans to sell a 100 percent equity interest in its subsidiary, CITIC Real Estate, and the residential property assets in the Chinese mainland of another subsidiary, CITIC Pacific, to COLI, according to its filing with the Hong Kong Exchanges and Clearing Ltd on Monday.
The deal will also give CITIC about a 10 percent equity stake in COLI, and CITIC will also receive additional assets estimated to be worth 6 billion yuan, the filing showed.
COLI will obtain property projects located in 25 first- and second-tier mainland cities that were measured at 24 million square meters in total by the end of 2015, according to the company's website.
The partnership with COLI will improve CITIC's competitive advantages, which is in line with the company's approach of teaming up with industry leaders.
"This is an important step in the restructuring of the property business," Wang Jiong, vice chairman and president of CITIC, was quoted as saying in the company's announcement.
The deal was mainly driven by CITIC, which has been eager to pursue asset restructuring in recent years, Yan Yuejin, director at Shanghai-based E-house China R&D Institute, told the Global Times on Monday.
"Selling part of its property assets to another company will also curtail competition between CITIC's two subsidiaries," Yan said.
CITIC's restructuring of its property assets has not been going smoothly, according to media reports in October 2015.
CITIC Real Estate has been developing residential properties in first- and second-tier cities for years, but it tapped into commercial properties such as hotels and office buildings in the past year, media reports noted. However, commercial properties have always been the major focus of CITIC Pacific.
As for COLI, it's likely to benefit from acquiring property projects, especially in some cities where insufficient inventories have driven up home prices, Yan said.
Property projects included in the deal are located in the Pan-Bohai Rim in North China, the Yangtze River Delta and the Pearl River Delta. It's these regions, where cities such as Shanghai and Shenzhen are located, that have seen surges in housing prices this year.
For example, in Shanghai, sales of secondhand homes rose 137.8 percent in January from a year earlier, according to a report from property agency Lianjia. And home prices in Shenzhen, South China's Guangdong Province, maintained double-digit growth in 2015.
Still, the tie-up between CITIC and COLI is unlikely to guarantee the duo a leading position in the domestic real estate industry, as their competitors have also been making attempts to win more market share, Song Ding, a Shenzhen-based market analyst at the China Development Institute, told the Global Times on Monday.
Song cited Vanke's recent purchase of assets from Shenzhen Metro, saying that this "also shows that the competition among real estate developers has heated up."
China Vanke Co was ranked in first place for seven straight years on the list of China's 500 biggest real estate developers in a survey initiated by the China Real Estate Association, according to an announcement published in March 2015 on fangchan.com, official website of the association. COLI was fifth on the latest list launched in March 2015.
"Compared with Vanke, COLI is a low-profile conglomerate, and the deal with CITIC is more likely to help the company gain market share instead of replacing its major rival," Song said.
