China's Evergrande Group Buys Publisher as Diversification Continues

By Esther Fung 

SHANGHAI--Chinese property developer Evergrande Real Estate Group Ltd plans to invest around HK$950 million ($122.5 million) for a controlling stake in a Hong Kong-based magazine publisher, New Media Group Holdings--its latest foray in a new business line as the firm looks to diversify to cushion the risks from a weakened property market.

The Guangzhou-based developer in recent times has been expanding into businesses that have no link to real estate, such as solar energy, baby formula and bottled water.

Evergrande said in a stock exchange announcement late Friday that it has signed a memorandum of understanding to buy 647.95 million shares, or a 74.99% stake in New Media Group, a firm that publishes Chinese-language magazines such as Oriental Sunday and Weekend Weekly.

Last month, the developer said it plans to invest a total of HK$1.2 billion in a U.S. solar company, Solar Power Inc., and another Hong Kong-listed firm, Guocang Group Ltd., as part of its plans to develop business in the new energy sector.

Evergrande, well-known in China for owning a successful soccer team, said in August it would spend 10 billion yuan in China's oil, grain and dairy markets. Last year, it started a new business line distributing bottled water.

Chinese real-estate developers have been facing tighter margins and weakened property sales as the country struggles with ballooning levels of housing inventories. Some are expanding into real-estate development abroad to cater to demand from Chinese buyers who are eyeing homes outside the sagging domestic market.

Analysts have raised concerns about Evergrande's strategy of diversifying, noting its high-debt levels and a large inventory of apartments.

Following Evergrande's move to invest in solar energy, ratings firm Moody's Investors Service lowered its outlook on the property developer to negative from stable.

"Evergrande's cumulative investment in non-property businesses has risen substantially in recent years, indicating the company's increased risk appetite to invest in businesses in which it has little experience," Franco Leung, a vice president and senior analyst at Moody's, said in a note last month. "These investments will take time to generate meaningful cash flows and in the meantime will consume cash and generate losses over the next 12-18 months."

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