China Overseas Land & Investment Ltd. said Monday it had signed a deal to purchase Chinese conglomerate Citic Ltd.’s residential property business in mainland China for 31 billion yuan ($4.8 billion).
To pay for the deal, China Overseas will issue HK$29.7 billion ($3.8 billion) worth of new shares, while the remainder would be paid by the transfer of 6.15 billion yuan ($947 million) worth of property portfolios to Citic, according to a filing to the Hong Kong Stock Exchange by China Overseas on Monday.
Following the announcement, China Overseas' stock rose as much as 4.6 percent, while Citic’s stock fell 1.5 percent.
Citic said in a statement that the combination of its commercial real estate assets and those of China Overseas, once transferred to the conglomerate, would strengthen its commercial property business in China.
"The transaction will enable the company to focus on commercial real estate, particularly large integrated projects," Citic Chairman Chang Zhenming said Monday. Citic would become China Overseas' second-largest shareholder, with a roughly 10 percent stake in the company upon completion of the deal.
Edison Bian, a Hong Kong-based analyst at UOB Kay Hian Ltd., told Bloomberg that the move was “justified” for China Overseas given its ample cash and the intensifying competition for land amid high prices.
“COLI [China Overseas Land & Investment Ltd.] struggled to finish the sales target last year, due to the limited saleable resources, leading to this major acquisition which will certainly help the company to catch up the game and remain seated in a leading position,” he wrote in a note, according to Bloomberg.
The property restructuring was "a long-awaited move" for investors, Credit Suisse analysts said in a note Monday, according to China Economic Review. The analysts, however, noted that the transaction could be negative for China Overseas, since Citic's property assets reside mainly in low-tier mainland cities where development projects are less profitable than in major cities.