(Yicai Global) Jan. 17 -- Shares of Red Star Macalline Group surged after C&D, a state-backed property developer, said it intends to purchase a controlling stake in the Chinese furniture retailer.

The deal should reduce C&D's exposure to the real estate industry cycle, Shanghai Securities News reported yesterday, citing the firm, whose actual controller is the Xiamen State-owned Assets Supervision and Administration Commission, talking at an investor meeting.

Red Star Macalline's stock price [SHA: 601828] jumped in the past two trading days by the daily limit of 10 percent and closed at CNY5.67 (US 80 cents). 

However, C&D’s shares [SHA: 600153] closed 1.6 percent lower at CNY13.37 (USD2) today after a 5 percent increase yesterday. 

The Xiamen-headquartered property firm will seek more opportunities in the consumer market via the up to CNY6.3 billion (USD931.7 million) acquisition, according to an announcement released on Jan. 13.

On Jan. 13, C&D said it will purchase 30 percent of the home decor and furniture seller and consequently, is likely to become the latter’s controlling shareholder. C&D can achieve synergies with Red Star Macalline in home decoration and real estate fields, which will drive the pair’s partnership in commercial real estate, C&D added.

Formed in 2007, Red Star Macalline has been having liquidity issues since the first half of 2021. It posted CNY75.6 billion (USD11.2 billion) in liabilities as of March 31, 2022, including around CNY38.2 billion of interest-bearing debts.

Red Star Macalline operates 94 self-owned retail outlets, while 280 others are run by franchisees. The occupancy rate of these outlets is stable, C&D said. The renowned retailer generates over CNY4 billion from its operating activities even amid the pandemic, so its short-term debt risks are under control, it added.

More than 60 percent of Red Star Macalline's self-operated stores are in first and second-tier cities, and their value appreciates greatly, so the firm can issue real estate investment trusts, per C&D managers.

The safety of the deal is the biggest concern of C&D, but the firm cannot reveal any related provisions because the deal terms are currently under discussion, the managers added. However, they believe Red Star Macalline is able and plans to settle its debts by itself and cut its financing costs. The acquisition will not affect C&D’s real estate investments this year, they added.

Editor: Emmi Laine, Xiao Yi