Sino-Ocean Group Holding Ltd.

07/17/2021 | Press release | Archived content

Joining hands, Sino-Ocean Group, Sino-Ocean Capital and Red Star Holdings Formally Sign Agreement

On July 18, Sino-Ocean Holdings (HK.03377) announced that an agreement has been signed by Sino-Ocean Group, Sino-Ocean Capital and Red Star Holdings to acquire a 70% equity interest in Red Star Real Estate for CNY4 billion. The three parties will effectively hold 35%, 35% and 30% equity rights respectively in Chongqing Red Star Macalline Enterprise Development Co., Ltd. to jointly promote the subsequent development and operation of Red Star Real Estate.

Based on the principle of mutual benefit and win-win strategy, all parties will further integrate their valuable resources and give full play to their advantages in real estate development, commercial operations and property management to achieve shared development with higher quality and expanded prospects.

Expanding Southward and Westward, Cultivating Intensively in Urban Areas

Starting the New Journey Together

Founded in 2009, Red Star Real Estate is the major Red Star Holdings real estate platform. Supported by its refined operations capability and high-quality land reserve resources, Red Star Real Estate has been ranked among the 'Top 100 Real Estate Enterprises in China' for years. In 2020, Red Star Real Estate achieved sales of around CNY40 billion (excluding Red Star Property) and has formed an extensive map in developed cities in East China and West China including Shanghai, Suzhou, Wenzhou, Xi'an and Guiyang.

As a comprehensive industrial enterprise with 28 years of development, Sino-Ocean continues to closely follow the national strategy and has developed over 500 projects in more than 70 cities. Its core business is laid out in developed regions such as the Beijing-Tianjin-Hebei Region, the Yangtze River Delta, the Greater Bay Area, Central China and West China. Since 2020, Sino-Ocean Group has initiated several development strategies including 'expanding southward and westward,' 'cultivating intensively in urban areas' and 'prioritizing high-efficiency projects' to further focus on major business and pursue balanced, high-quality growth.

The two enterprises share convergent strategic insights and complementary major business layouts, providing a basis for the full exploitation of their respective advantages and the high-quality future development of Red Star Real Estate.

To date, Red Star Real Estate has a value of nearly hundred billion CNY in goods for sale, of which 70% is located in first- and second-tier cities such as Shanghai, Suzhou and Changsha. In terms of its regional layout, over 80% is located in East China, Central China and West China. As regards industrial distribution, saleable residential products account for up to 80%; most of these are high-efficiency projects for rigid demand or resilience engineering with high sell rates. In addition, most of Red Star's projects are acquired through 'Tender, Auction and Listing'; many projects are obtained at bargain prices while distributing in cities with higher urban function, and gross profit margins can reach 25% to 30%. As of 2020, Red Star Real Estate has a net profit margin of 15%, which is much higher than the industry average. On the basis of its quality land reserve resources, with its brand advantages and refined management, Sino-Ocean Group will improve the operational efficiency and product quality of the collaborative projects in all aspects.

Following the cooperation, Sino-Ocean's land reserves in East China, Central China and West China will be significantly increased, the regional layout will be improved and more balanced, and the sales scale is expected to reach a new high. According to the plan, Red Star Real Estate will contribute CNY30-40 billion in sales in each of the next two years, with the vast majority of sales coming from East China, Central China and West China.

Empowering Commercial Operations with Professional Capabilities

Taking Advantage of the Linkage Mechanism for Land Acquisition

In addition to its main business of residential development, Sino-Ocean Group has been engaged in commercial real estate for over ten years and has built famous commercial benchmarks such as INDIGO Beijing, Sino-Ocean Taikoo Li Chengdu and Sino-Ocean Grand Canal Place Hangzhou.

In this collaboration, Red Star Real Estate also owns 21 well-known commercial projects, of which high-quality assets accounting for more than 70% of the overall valuation are situated in the core locations of first- and second-tier cities such as Shanghai, Tianjin, Fuzhou, Suzhou, Changsha and Xi'an. Meanwhile, more than 30% of the projects are located in East China. At present, three commercial projects are already opening, and it is expected that there will be more than ten new openings over the next two years. In terms of operation and management, to give full play to its broad operating experience and differentiated competitive advantages, Red Star Real Estate will, in principle, continue to entrust Aegean Commercial Group with the operation and management of the 21 commercial projects. As a renowned shopping center brand in China, Aegean Group is an expert in digital intelligence operations and innovative product development, which will bring stable and sustainable earnings to these commercial projects.

At the same time, the Red Star Real Estate property management platform will be transferred to Sino-Ocean Group and Sino-Ocean Capital for 100% ownership at the price of net book value. As the projects enter delivery, the area this property management platform is in charge of will exceed 20 million square meters in the next three years. Sino-Ocean Group will continue to promote the assets and service quality of its properties through the integration of management resources, the enhancement of value-added services for owners and improvement of the operating structure.

Taking this collaboration as an opportunity, Sino-Ocean Group will optimize its layout in commercial real estate and property services, and further benefit from the linkage land acquisition mechanism under the 'cultivating intensively in urban areas' strategy to expand its land reserves in a diversified manner.

Adequate Cash Flow

Forward-looking Construction of a New Security Bottom Line

In 2020, regulators introduced the 'three red lines' policy to specify the debt raising standards of real estate enterprises and set three red lines according to the level of leverage.

Sino-Ocean Group always upholds rigorous investment standards and strategies and persists in quality scale growth while safeguarding financial soundness. By the end of 2020, the group was scored as Green by the Three Red Lines standard, and its credit level continues to be at the top-tier position in the industry. It has been rated Baa3 by Moody's, BBB- by Fitch's, and AAA by both CCXI and China Lianhe Credit Rating. On July 6, 2021, Sino-Ocean Group successfully priced a US$320 million green bond at a coupon rate of 2.7%, which marks the lowest interest rate for a USD bond issued in the company's overseas market, demonstrating the Group's superior financial profile and credit level.

Meanwhile, Red Star Real Estate's overall balance sheet structure is high quality and safe. As of the end of 2020, Red Star Real Estate had total assets of approximately CNY100 billion, including over CNY60 billion in inventory, CNY9 billion in cash, nearly CNY50 billion in pre-receivables, CNY16.8 billion in interest-bearing liabilities and CNY16.7 billion in net assets.

Sino-Ocean Group will fully utilize the differentiated advantages of its capital management business to support the efficient operation of Red Star Real Estate. Red Star Real Estate can also leverage Sino-Ocean Capital's expertise in asset securitization and financialization to obtain abundant cash flow. After years of efforts, Sino-Ocean Capital has accumulated substantial operations and management experience in the field of commercial properties, data properties, logistics properties and other stock assets, and has established a closed-loop asset management business model of 'fund raising, investment, management and withdrawal' that has won praise from the industry.

Under this collaboration, Sino-Ocean Group and Sino-Ocean Capital have built a cash flow safety valve in an innovative and forward-looking manner and will subsequently continue to raise funds through sales returns from Red Star Real Estate projects and net commercial cash flow. The Sino-Ocean Group will stick to its financial standards and will make steady progress as a 'long-distance runner.'

Focusing on Efficacy

Opening Up for a Promising Win-Win Future

Wang Honghui, Executive Director and Executive President of Sino-Ocean Group, said that as the real estate industry moves towards a phase of high-quality development, it has become an essential trend for real estate enterprises to work together strategically to achieve mutual benefits and win-win outcomes. Red Star Real Estate has high-quality assets, strong profitability, a sound financial status and a professional, efficient and practical team, which is a good match with the Sino-Ocean Group corporate culture. Sino-Ocean Group will promote the stability and integration of the Red Star Real Estate team with an inclusive attitude and mutual respect to build a winning situation of 1+1>2. Sino-Ocean Group and Red Star Holdings will collaborate in good faith, cooperate hand in hand, continuously contribute to the construction of Habitat for Humanity and serve a better life for people.

Guided by the new concept in development, it has been a trend for enterprises to return to their primary business, and this collaboration has opened up new prospects for Sino-Ocean Group and Red Star Holdings to work together for a win-win future. Sino-Ocean Group has pursued the strategies of 'expanding southward and westward' and 'cultivating intensively in urban areas' to achieve more balanced, steady and quality development of its main business; Red Star Holdings has followed the direction of 'lightening assets, emphasizing operations and reducing leverage' to further fulfill its goal of focusing on its main business of home furnishing and increasing its market share. With Sino-Ocean's robust comprehensive strength, financing capability and operational performance, the potential of a Red Star Real Estate equipped with high-quality assets is expected to be fully unleashed and to generate greater returns for shareholders.