One of the largest property developers in China, Evergrande Real Estate Group Ltd., acquired 50 percent share from Great Eastern Life Assurance Co for 3.9 billion yuan, or $610 million, to get into the insurance industry.
According to Bloomberg, the purchase will rename the insurance company into Evergrande Life Insurance Co. as reported by the developer in its filing to the Hong Kong stock exchange Sunday. Besides the insurance firm, Evergrande also bought pricey acquisitions in 2015, including the $1.6 billion-investment on Hong Kong-based Mass Mutual Tower. Buying Great Eastern Life Assurance increases Evergrande's risk profile since it is diversifying into a new business and it still has to transform the slumping insurer into a profitable company.
"The acquisition is a strategic deployment for the Group to enter the insurance sector," according to Evergrande in a report by Deal Street Asia. "Currently, China's insurance sector has entered a fast track of development, where insurance licenses have their own unique capital investment value."
Evergrande will endorse its insurance products to the more than 300 new housing properties it owns.
The Financial Times reported that the property market of China has declined for the last two years amid the surplus of supplies due to rapid construction and high price growth. After a year of declining, sales are starting to increase. However, construction is still contracting since developers are still waiting for the market to buy the unsold inventory. According to analysts, the season of soaring growth of China's property marketing has already passed.
"Evergrande's march into insurance is a necessary result of its diversification strategy;" a statement from the E-House China R&D Institute director Yan Yuejin. "Evergrande hopes that by entering insurance and other financial services, it can travel the 'asset-lite' path and reduce operating costs."
Meanwhile, Evergrande's share went up 5.4 percent to HK$6.81 at the Midday break in Hong Kong. This is the highest increase it has experienced since May.
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