Stated-owned construction firm may raise holding in developer after deal

State-owned China Communications Construction Group (CCCG) has emerged as one of the two largest shareholders of Greentown China Holdings Ltd after acquiring a 24-percent stake in the Hangzhou-based developer.

Greentown said on Wednesday it would sell shares to CCCG, instead of Sunac China Holdings Ltd, for HK$6 billion ($773 million) at HK$11.46 per share - an 81-percent premium to the stock's closing price on Dec 19. Trading in Greentown shares was suspended on Dec 22.

Greentown's share price surged 20.66 percent to HK$7.65 at the close of trading in Hong Kong on Wednesday.

"Seeing that the shares had dropped 10 percent on Dec 19 when Greentown announced that it planned to sell a similar stake to Sunac, it's obvious that investors have more confidence in CCCG," said Ben Kwong Man-bun, director of research at Hong Kong-based KGI Asia.

Analysts at China International Capital Corporation Ltd (CICC) said in a note that CCCG may increase its stake in Greentown in future, and believed it's possible that CCCG would eventually become Greentown's largest shareholder and turn the developer into its real-estate platform.

Kwong agreed there's such a possibility, saying that CCCG's move could be a reference to Hong Kong's MTR Corporation Ltd, which generated sizable revenue from both its property management and transport operations.

"CCCG, the parent company of the nation's biggest building firm, could develop residential and commercial properties close to major construction projects they've in hand," Kwong said.

Since the deal has erased uncertainty over a battle for control of the builder between Greentown's founder Song Weiping and Sunac, CICC now adopts a "buy" rating for Greentown.

Kwong said the positive effect of the acquisition deal has been digested by the market and he believed that another price surge for Greentown would only appear when explicit cooperation projects are worked out with CCCG. Other bullish factors include favorable measures such as required reserve rate (RRS) and interest-rate cuts.

"The share price (of Greentown) will hover between HK$7 and HK$9 ahead of the positve changes," Kwong said, advising investors to sell their stocks when the price goes up to around HK$9 in order to reap profits.

Following the deal, Song's holding in Greentown has dropped to 10 percent from 22 percent, while chief executive officer Shou Bainian had his stake cut by half to 8.1 percent.

Hong Kong's Wharf Holdings Ltd - Greentown's other major shareholder which bought shares in the developer in 2012 - continues to hold 24 percent of the company, the same as CCCG.

Luo Weiteng contributed to this story.

gladdy@chinadailyhk.com

China Communications Construction Group will pay HK$6 billion ($773 million) for a 24-percent stake in developer Greentown China. Asia News Photo

(HK Edition 12/25/2014 page1)