Has Banyan Tree Holdings Ltd Found The Perfect Business Partner?

Hospitality outfit Banyan Tree Holdings Ltd (SGX: B58) announced yesterday that it will be forming a partnership with one of the largest property developers in China, China Vanke Co. Ltd.

After struggling with its business in the past few years – the company made a loss of S$27.5 million in 2015 – is this the big break for Banyan Tree?

The partnership will see China Vanke taking up a 5% stake in Banyan Tree for about S$25 million. Banyan Tree will be issuing new shares for the deal. China Vanke, which has a market capitalisation of some HK$255 billion (around S$47 billion), also has an option to boost its stake in the hospitality company to 10% in the future.

But that’s not all. Banyan Tree will be forming a 50-50 joint venture with China Vanke as well. The joint venture, which is named Banyan Tree China, would be used to co-develop hospitality assets under the Banyan Tree brand. In return, Banyan Tree would transfer all of its current China-based assets to the new entity.

The new partnership with China Vanke is certainly good news for Banyan Tree. It gives Banyan Tree a strong partner to expand in China and a better foundation to compete in the country. Moreover, Banyan Tree may even be involved with other China Vanke projects in the future; in this way, the former can tag on the growth of the latter.

The Banyan Tree deals also come after China Vanke had recently settled a takeover dispute. China Vanke was the target of a hostile takeover attempt by Baoneng Group in 2015. The saga, which only ended a few weeks ago after China Vanke’s management managed to settle the dust, was one of the highest profile corporate battles in China.

Now, China Vanke is ready to refocus its attention on its business and the partnership with Banyan Tree may be an indication that the developer has plans to utilize the Banyan Tree brand in its future growth projects.

Banyan Tree’s shares are currently trading at S$0.53 each (as of 12:40 pm), some 9.3% higher than yesterday’s close. At a share price of S$0.53, Banyan Tree has a price-to-tangible-book-value of 0.8.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn’t own shares in any companies mentioned.