Shares in Guangzhou R&F Properties and Sunac China rallied to record highs on Thursday on an restructured property deal with Dalian Wanda Group that is expected to benefit all parties.
Wanda, a commercial property conglomerate, reworked a $9 billion deal to sell hotel and tourism assets to Sunac after banks scrutinised their credit risk.
The new deal brings in R&F as the buyer of 77 hotels for 19.9 billion yuan ($2.9 billion), 40 percent less than what Sunac would have paid. Sunac will also pay 43.8 billion yuan ($6.5 billion) for 91 percent equity in 13 tourism projects, up from 29.58 billion yuan
The acquisition would make R&F the largest hotel owner in the world, the Guangzhou-based company said.
Shares in R&F jumped as much as 13 percent and Sunac climbed as high as 18 percent compared with a flat broader market.
"The total amount that Sunac has to pay is less now, which will relieve some leverage pressure," said CIMB analyst Raymond Cheng, adding Sunac had wanted to sell off the hotels after the original deal because hotels are not its core business.
"The new deal does increase the average 1,500-1,600 yuan per square meter price of the land bank for the tourism projects by another 260 yuan - even so that is still below market price."
Analysts expect Sunac`s net gearing will rise to around 250 percent with the new deal, lower than the 300 percent seen in the original deal. It had net gearing of 208 percent in 2016.
Sunac Chairman Sun Hongbin was quoted as saying by local media this week that banks were looking at the company`s credit risks after its deal with Wanda, and the company was in communication with the lenders.
Chinese banks have been told to stop providing funding for several of Wanda`s overseas acquisitions as Beijing tries to curb the conglomerate`s offshore buying spree, sources familiar with the matter said on Monday.($1 = 6.7635 Chinese yuan)