Thursday 11 December 2008
Private equity funds put mainland assets on block
Real estate private equity funds that made aggressive investments in the mainland market at high prices prevailing in 2006 and last year are now being forced to offload the underperforming assets that have been plagued by a non-stop fall in prices over the past 15 months.
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Private equity funds put mainland assets on block
Peggy Sito and Sandy Li
10 December 2008
Real estate private equity funds that made aggressive investments in the mainland market at high prices prevailing in 2006 and last year are now being forced to offload the underperforming assets that have been plagued by a non-stop fall in prices over the past 15 months.
Harvest Capital, a private equity fund manager that manages two international funds with equity of over US$1 billion, says it has received four offers from international funds seeking to offload assets.
“Some are offloading their portfolios at a very attractive yield or even at below cost,” said Ren Rong, chief executive of Harvest Capital, which is 90 per cent owned by state-owned China Resources (Holdings).
He did not identify the sellers but said he expected to see more deals from his peers available in the market as the financial turmoil deepened.
Unlike developers, who could delay completion in response to worsening market conditions, real estate funds had to bear the full brunt of the fall in prices, he added.
Mr. Ren said Harvest Capital had not made aggressive investments or bought expensive land at public auction in the last two years and would now take the opportunity presented by falling prices to expand.
“We intend to pick up one or two transactions for our international private equity fund in the near future.
The company will also seek partnership opportunities with large domestic developers.
London-based Grosvenor Capital, which formed a US$600 million fund last year to buy shopping centres on the mainland, said it was well-positioned to expand.
It hopes to close its first acquisition of a shopping centre in the first half of next year at an investment of up to US$200 million.
“We are looking at two to three deals in first- and major second-tier cities including Beijing, Shanghai, Shenyang and Tianjin as it is a good time to buy,” said chief executive Nicholas Loup.
The ideal investment size would be in the range of between US$100 million and US$200 million each, he added.
Mr. Loup said he foresaw plenty of opportunities in the medium to long term in the sector as strong domestic consumption and existing stocks of retail spaces per sq ft per person were still underdeveloped.
“There is lots of potential over the next 20 years.”
Retail sales on the mainland rose 23.2 per cent year on year in September, according to the National Bureau of Statistics. Over the nine months to the end of September sales were up 22 per cent.
Given such robust figures, Mr. Loup said prices of shopping centres had shown no sign of falling significantly as the owners’ cash-flow positions remained strong.
He expected the mainland economy in general would likely begin showing signs of recovery in the second half of next year, followed by the property market.
Mr. Ren of Harvest Capital said the real estate market was likely to recover gradually as early as the third or fourth quarter of next year.
“Major cities will be more attractive than second-tier cities,” he said, and Beijing and Shenzhen would prove more attractive than Shanghai as the property market of the nation’s financial hub still faced uncertainties.
Mainland developers would see an improvement in liquidity in the next few months as the government “will not sit down and see them die”.
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