By Clare Jim
HONG KONG (Reuters) - Sunac China Holdings's <1918.HK> planned $9.3 billion deal to buy Dalian Wanda's tourism projects and hotels is a bargain even though it could become China's most indebted developer, analysts said, a view that sent Sunac shares up nearly 14 percent on Tuesday.
In what will be the second-biggest real estate deal ever in China according to Reuters data, acquisitive developer Sunac is buying 13 cultural tourism projects and 76 hotels from property giant Wanda. The companies are expected to sign an agreement by the end of this month.
After the deal, 50 million square meters of saleable gross floor area will be added to Tianjin-based Sunac's land bank, making it one of the largest property developers in the country by land area, after China Evergrande <3333.HK>.
"The average cost per square meter for the 13 cultural projects is 600 yuan, if you give a discount for the undisclosed area of non-saleable land for Sunac, it's still only around 1,000 yuan," said RHB Research analyst Toni Ho in Hong Kong. "The deal will give Sunac access to land across tier-one to tier-four cities in one go."
Ho said the gross margin of the land involved is at around 20-30 percent, higher than Sunac's average of 13 percent.
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Sunac's shares surged 13.65 percent, their biggest one-day gain in more than two-and-a-half years, on Tuesday. They resumed trade after being suspended on Monday ahead of news of the pending deal. The Hang Seng Index <.HSI> gained 1.5 percent.
The developer has more than doubled in market value this year to HK$65.7 billion ($8.41 billion).
"This cooperation will add a large number of prime land reserves and property assets for the company at a reasonable cost," Sunac said in a statement on Tuesday, citing reasons for the deal.
Sunac, though, would surpass Evergrande as the most indebted developer in China after the deal, analysts said.
RHB's Ho estimated Sunac's gearing ratio will be around 300 percent at the end of year, compared to 208 percent in 2016. Evergrande, which is actively de-leveraging by repaying all its perpetual bonds, is expected to drop below 300 percent.
"Such acquisition is radical and risky as it will stretch Sunac’s financial position to the extreme given the low return and slow asset turnover of the projects," BOCI analyst Gurney Liu in Beijing said in a report.
Liu, who estimated Sunac's net gearing could surge to over 400 percent after the deal, said large-scale development projects and hotels generate lower return than regular property business, and they also lock up significant financial resources for a long investment cycle.
"After the payment, Sunac's cash on hand would dip to 30 billion yuan, which is less than its borrowings maturing in one year at 38.7 billion yuan as reported in its 2016 annual report," she said.
Sunac declined to comment on its leverage position.
In the statement, Sunac disclosed Wanda would provide a three-year loan of 29.6 billion yuan, which is almost the same amount as the price for the 13 cultural projects, at a three-year benchmark interest rate.
After the deal, Wanda will still be responsible for the operation of the properties, and Sunac will pay an annual management consulting fee for the 13 theme parks of 50 million yuan each to Wanda for a contract term of 20 years.
(Reporting by Donny Kwok, Clare Jim and Anne Marie Roantree; Editing by Shri Navaratnam and Muralikumar Anantharaman)