China’s Evergrande bidding $700m for upmarket UK housebuilder

Chinese property developer Evergrande Group has been revealed as the company behind a reported £700m ($860m) bid to take over a major UK housebuilder.  

Discussions with shareholders of Cala Homes, a national group that specialises in upmarket developments, have been ongoing for several months.

A deal is some way off but talks were described by an insider yesterday as "serious and credible", Sky News reports.

A spokesperson for Cala said: "Thanks to the quality of our brand and strong financial and trading performance, from time to time we may find ourselves the subject of speculation but from our perspective it is very much business as usual."

Evergrande, which is based in Guangdong province, is China’s second largest property develop by sales. It was formed in 1996 by businessman Xu Jiayin and floated on the Hong Kong stock Exchange in 2008.

The company benefited from the property boom in Guangdong, whose population is about 10 million greater than the UK’s. Xu is reportedly the fourth richest man in China, with a net worth of $10.1bn. One of its projects currently under development is Ocean Flower Island in the South China Sea.

Evergrande is believed to be one of the most leveraged developers in China, with a debt-to-equity ratio of 122% at the end of June, compared with the Hong Kong average of 83%. Despite this, it has shown an appetite for acquisitions. Most it bought $3.2bn of property projects from Hong Kong rival New World Developments. 

Evergrande’s Ocean Flower development in the South China Sea is due to be complete in 2020 (Evergrande)

Cala Homes began in 1875 as the City of Aberdeen Land Association and has since grown to be a national company, becoming Britain’s largest private housebuilder after it took over Banner Homes for £200m ($250m) in 2014. It specialises in large homes in what chief executive Alan Brown described as "Waitrose-type markets", referring to the upmarket UK grocery chain. Its average selling price is £540,000 compared with a UK average of £200,000.

The company avoided collapse in the 2008 crash by being taken over by its main creditor, the equally distressed Lloyds Banking Group. Lloyds then sold it to insurer Legal & General and private equity group Patron for £210m ($260m) in 2013.
These companies are looking to sell Cala, and have already enlisted asset manager Lazard to help broker a deal. Evergrande is being represented by accountant KPMG.

Earlier this month, Cala reported an 18% jump in pre-tax profit to £60m ($74m), with turnover up 15% to £587m ($720m).

Top image: Cala builds upmarket homes, like the one in this rendering, which will be built near Aberdeen (Cala Homes)

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