Evergrande Unit Gains Most In Two Weeks After Buying Rival

(Bloomberg) -- China Evergrande Group's property services unit surged to a record after buying a rival firm as part of its push to become the country's largest property manager.

Evergrande Property Services Group Ltd. surged as much as 13.5% in Hong Kong trading on Monday after it agreed to buy Ningbo Yatai Hotel Property Services Co. for 1.5 billion yuan ($233 million). The stock has more than doubled since its November IPO, touching a high of HK$19.50 in morning trade, before paring gains to recently be fetching HK$17.52.

The acquisition will help Evergrande Services meet its ambition of increasing profit by 50% this year and becoming the country's largest property manager. The deal is the firm's first since it raised $1.84 billion in the initial public offering. At the time, the company said the majority of the proceeds would be used for acquisitions.

Income from the service provider may work as a reliable source of cash for debt-saddled China Evergrande, Bloomberg Intelligence analysts Michael Tam and Patrick Wong wrote in a note. With a $120 billion debt pile as of June, Evergrande is still under pressure to lower leverage under new requirements imposed by China's regulator known as the “three red lines.” In December, the developer received about $920 million from offering its holdings of the services unit.

While many property services companies benefit from new projects by their parent developers for expansion, Evergrande's services arm needs mergers and acquisitions to sustain growth, UBS Group AG analysts led by John Lam wrote in a January report. Evergrande might need to sell some property projects due to tight liquidity and a down-cycle in the market, which could weaken growth at its management affiliate, according to the report.

Last month, Evergrande Property Services said it planned to expand the area under management by 30 million square meters (323 million square feet) each month this year, people familiar with the matter said. The acquired firm would increase its business scale by at least 80 million square meters, according to a filing.

After the acquisition, the company's area under management will be more than 380 million square meters, the filing said. The country's largest property services provider, which is operated by China Vanke Co., managed a total area of 520 million square meters as of June last year.

The purchase will add 940 projects serving 2 million homeowners to its portfolio, the company said in a statement Friday. Ningbo Yatai also manages office buildings and industrial parks.

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With assistance from Bloomberg