Sunac Services Strikes Deal to Buy Into Property Management Unit Linked to Struggling Rival
Hong Kong-listed property management company Sunac Services Holding Ltd. has struck a deal to buy nearly a third of a peer linked to a developer that recently missed a payment deadline on $250 million bond.
In the Monday filing, Sunac Services said it has offered to purchase over 322 million shares of Hong Kong-listed First Service Holding Ltd., 32.22% of the firm's total outstanding shares, at a price of 693 million yuan ($108 million).
The cash offer of HK$2.6167 per share represents a 91% premium on the closing price of First Service shares at the close of trade on Oct. 7. The filing said both parties entered share transfer agreements that day, but that the deal is still subject to due diligence, approval from regulators and other conditions.
Sunac Services also plans to purchase the remaining shares in First Services and make it a wholly owned subsidiary, the announcement said.
First Service shares the same controllers as Beijing-based developer Modern Land (China) Co. Ltd., which missed a payment deadline last week. Modern Land’s Chairman Zhang Lei and President Zhang Peng together own over 57% of First Service.
China’s developers are facing slumping sales and rapidly contracting access to financing, as regulators work to deleverage the sector and the liquidity crisis at giant China Evergrande fuels worries about the industry among investors and homebuyers.
Chinese borrowers have defaulted on at least $8.7 billion of offshore bonds this year, with the real estate sector making up one-third of that amount, according to Bloomberg calculations.
With over 50 million square meters of Chinese mainland floor space under management at the time, First Service listed in Hong Kong in October 2020. However, its stock price has most been on a downward trend since. It jumped 58% and closed at HK$2.16 after Sunac’s offer was made on Monday, still well below Sunac Services’ offering of HK$2.6 per share.
With the acquisition, Sunac Services says it hopes to gain “core competence and competitive advantage” in green construction, including in services such as consulting on eco-friendly technology. First Service was one of the first Chinese property management companies to market such services, Sunac’s filing read.
Under an action plan (link in Chinese) the Ministry of Housing and Urban-Rural Development released last year, 70% of new urban buildings should be “green” by 2022.
In the last few years, several Chinese real estate companies have spun off their property management units, helping them to pare down their generally high levels of debt. Multiple Hong Kong-listed developers, including Fantasia Holdings Group Co. Ltd., Sichuan Languang Development Co. Ltd., Guangzhou R&F Properties Co. Ltd., as well as troubled China Evergrande Group, have spun off their property management businesses.
Sunac Services was a wholly-owned subsidiary of Sunac China Holdings Ltd., the fourth-largest property developer by sales in the country, before it went public in Hong Kong last year. Sunac China currently owns over 69% of Sunac Services, which dropped 0.63% and closed at HK$15.62 on Monday.
Contact reporter Manyun Zou (firstname.lastname@example.org) and editor Joshua Dummer (email@example.com)
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