(Yicai Global) April 6 -- Shares in China Merchants Shekou Industrial Zone Holdings surged as much as 7 percent today after Kaisa Group said it has struck a tripartite co-operative deal with the Chinese property developer and a state-owned asset manager to help the struggling homebuilder revitalize some of its core projects and find a way out of its liquidity crisis.

China Merchants Shekou’s share price [SHE:001979] closed up 5.1 percent at CNY16.28 (USD2.50). Earlier in the day it had hit CNY16.58, its highest level since September 2020. Kaisa’s stock was suspended from trading on April 1 for failing to release its 2021 annual report on time.

Kaisa has penned a strategic deal with China Merchants Shekou and China Great Wall Asset Management, the Shenzhen-based developer said in a filing to the Hong Kong stock exchange yesterday. The three parties will look at revitalizing its existing commercial and residential development projects and find ways to alleviate short-term liquidity difficulties through various means such as equity cooperation, assets transfer and joint operations, it added.

The strategic cooperation will be helpful to China Merchants Shekou's businesses in the Guangdong-Hong Kong-Macao Greater Bay Area and the surrounding region by boosting high-quality land resources, China Merchants Shekou said in its own statement yesterday.

"The parties all agree that they shall choose each other as preferred partners when it comes to any new business opportunities," said Kaisa, 70 percent of whose urban projects are in the southern economic hubs of Shenzhen and Guangzhou.

Uncertain Results

Whether the partnership will be effective remains to be seen, an industry insider told Yicai Global. Such tie-ups generally only indicate an intention to co-operate, but problems can arise when it gets to the specifics. Whether they will use hard cash for mergers and acquisitions is another matter, he added.

Similar partnerships, such as the deal reached between real estate giant Vanke and troubled homebuilder Tahoe Group in July 2020, have yielded no major results, the insider said.

"Some projects seem quite promising at first glance but problems are often found especially after due diligence," a China Merchants Shekou manager said recently. "So, we still need to proceed with M&As in a relatively cautious manner."

Kaisa’s liquidity has been under unprecedented pressure since the beginning of last year due to a cooling property market and an increasingly tight funding environment. Last November it defaulted on CNY300 million (USD46.9 million) of wealth management products and has another CNY12 billion (USD1.9 billion) worth that it has guaranteed for a business partner that it might not be able to honor.

The developer has 25 projects in the mainland up for sale and is also offloading residential and office building assets in Hong Kong as it scrambles to raise cash. As of mid-2021, Kaisa had 213 urban renovation projects in development with a designed floor area of 110 million square meters.

Editors: Tang Shihua, Kim Taylor