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Thursday 11 March 2010
China developers turn to PE funds for capital
Capital-hungry Chinese developers are turning to real estate private equity funds this year as big domestic banks tighten lending to help Beijing curb property prices, a top concern for most Chinese.
New trend comes as local banks tighten lending to help govt curb property prices
Reuters 10 March 2010
Capital-hungry Chinese developers are turning to real estate private equity funds this year as big domestic banks tighten lending to help Beijing curb property prices, a top concern for most Chinese.
Foreign banks and buyout funds have been in active discussions with private equity specialist lawyers to form property funds since the start of the year, and some multi-hundred- million-dollar funds are ready to go, according to people involved in these fund-raising plans.
‘Private equity players believe the more bank loans are tightened, the bigger the opportunity for them to invest in Chinese properties,’ said a lawyer working for a US client, which is forming a real estate fund with a China focus. ‘When developers find it difficult to get loans from banks, they have to seek alternatives, and private equity funds will be a good option,’ said the lawyer.
Citigroup Inc’s private bank joined hands with state-owned conglomerate China Resources Group to raise about US$500 million for real estate funds to invest in Chinese shopping malls, Reuters reported last month. Last week, Franklin Templeton’s real estate arm said it aims to raise US$300 million for its second Asian real estate fund, which includes China as a market focus.
Developers used to turn to the stock market for fund-raising via initial public offerings (IPOs). Most investors, however, are no longer big fans of property stocks this year.
Nine Chinese property companies listed in Hong Kong last year, raising a combined US$5 billion, according to Reuters calculations. The flood of real estate IPOs has put pressure on developers’ fund-raising plans via stock markets.
As a result, many developers now are more keen to seek money from private equity funds because they need medium-term capital to finance their new projects.
Palm Spring is in talks to sell a stake worth between US$100 million and US$200 million to a private equity fund after the luxury developer failed to launch its planned IPO worth up to US$1 billion in Hong Kong last year, sources told Reuters.
‘If you can’t do an IPO immediately, and you have trouble getting loans from banks, then what else can you do? Naturally you will think of private equity, though the financing cost could be higher,’ said one of the sources. ‘And that’s also why you see suddenly many new property funds are in the making.’
In recent months, some Chinese developers were forced to give up the land they won via public auctions due to a lack of capital to kick off construction. In the event, they lost some guarantee money to the land auctioneers, local media reported.
Even among Chinese banks, which have been guided by the banking regulator to slow down lending to developers and raise down payments for second or third home buyers, some are keen to help raise property funds to finance developers indirectly.
The China Banking Regulatory Commission has warned some major state lenders to slow lending after they approved loans at a record pace at the start of the year. Part of the loans were mortgages, which some analysts said have helped boost property prices in major cities since the second half of last year.
Property inflation has become one of the biggest complaints among ordinary Chinese, raising concerns among policymakers in Beijing that it could eventually strain social stability.
‘On the one hand, we will continue to support people’s reasonable demands in housing consumption,’ said Yang Kaisheng, president of Industrial and Commercial Bank of China, the world’s largest bank by market value. ‘Secondly, we also need to avoid risks that may appear in housing market lending,’ he said this week.
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China developers turn to PE funds for capital
New trend comes as local banks tighten lending to help govt curb property prices
Reuters
10 March 2010
Capital-hungry Chinese developers are turning to real estate private equity funds this year as big domestic banks tighten lending to help Beijing curb property prices, a top concern for most Chinese.
Foreign banks and buyout funds have been in active discussions with private equity specialist lawyers to form property funds since the start of the year, and some multi-hundred- million-dollar funds are ready to go, according to people involved in these fund-raising plans.
‘Private equity players believe the more bank loans are tightened, the bigger the opportunity for them to invest in Chinese properties,’ said a lawyer working for a US client, which is forming a real estate fund with a China focus. ‘When developers find it difficult to get loans from banks, they have to seek alternatives, and private equity funds will be a good option,’ said the lawyer.
Citigroup Inc’s private bank joined hands with state-owned conglomerate China Resources Group to raise about US$500 million for real estate funds to invest in Chinese shopping malls, Reuters reported last month. Last week, Franklin Templeton’s real estate arm said it aims to raise US$300 million for its second Asian real estate fund, which includes China as a market focus.
Developers used to turn to the stock market for fund-raising via initial public offerings (IPOs). Most investors, however, are no longer big fans of property stocks this year.
Nine Chinese property companies listed in Hong Kong last year, raising a combined US$5 billion, according to Reuters calculations. The flood of real estate IPOs has put pressure on developers’ fund-raising plans via stock markets.
As a result, many developers now are more keen to seek money from private equity funds because they need medium-term capital to finance their new projects.
Palm Spring is in talks to sell a stake worth between US$100 million and US$200 million to a private equity fund after the luxury developer failed to launch its planned IPO worth up to US$1 billion in Hong Kong last year, sources told Reuters.
‘If you can’t do an IPO immediately, and you have trouble getting loans from banks, then what else can you do? Naturally you will think of private equity, though the financing cost could be higher,’ said one of the sources. ‘And that’s also why you see suddenly many new property funds are in the making.’
In recent months, some Chinese developers were forced to give up the land they won via public auctions due to a lack of capital to kick off construction. In the event, they lost some guarantee money to the land auctioneers, local media reported.
Even among Chinese banks, which have been guided by the banking regulator to slow down lending to developers and raise down payments for second or third home buyers, some are keen to help raise property funds to finance developers indirectly.
The China Banking Regulatory Commission has warned some major state lenders to slow lending after they approved loans at a record pace at the start of the year. Part of the loans were mortgages, which some analysts said have helped boost property prices in major cities since the second half of last year.
Property inflation has become one of the biggest complaints among ordinary Chinese, raising concerns among policymakers in Beijing that it could eventually strain social stability.
‘On the one hand, we will continue to support people’s reasonable demands in housing consumption,’ said Yang Kaisheng, president of Industrial and Commercial Bank of China, the world’s largest bank by market value. ‘Secondly, we also need to avoid risks that may appear in housing market lending,’ he said this week.
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