Developer Longfor Turns to Standard Chartered PE for Financing

A cross-border consortium of private equity investors led by a unit of Standard Chartered Bank last week put $124 million into a Chongqing real estate project in a deal that may signal a greater role for private investment funds in China’s property sector.

According to a statement from the bank, Standard Chartered Private Equity will invest $69.4 million, as lead investor in the consortium, into a commercial development by Longfor Property Holdings in the western Chinese city. The bank indicated that the other members of the consortium include an unnamed Chinese institutional investor and a wealthy Asian family.

Commenting on the local developer’s decision to bring foreign capital into the project, Longfor director Xu Tonghui told the local press that, “During this period of volatility, seeking financial partnerships allows us to share risks and benefits, as well as improving utilization of our own funds. This also helps us to broaden our financing channels and become more innovative.”

After the capital injection, the consortium will hold 28 percent of the project, and Longfor, which last year was ranked as the seventh-largest developer in China, will continue to lead the development and management of the project.

The investment marks the first time that Hong Kong-listed Longfor (HKG:0960) has worked with an overseas private equity investor, and the joint participation in the deal by a British bank, a Chinese institution and wealthy individuals from the region, also appears to show increasing integration of private capital in Chinese investments.

Commercial Project in Chongqing’s Jiangbei District

The project that brought together this cross-border consortium is a 312,310 square metre mixed-use development in the Guanyinqiao area of Chongqing’s Jiangbei district. Longfor successfully bid RMB 2.52 billion ($406 million) for the 60,359 square metre site in December last year, and the project is planned to comprise a mix of SOHO units, commercial office space and supporting retail.

The developer indicated that pre-sales of strata-title space in the project are scheduled to begin in September this year.

At the start of this month Chongqing local authorities held a news conference announcing a planned upgrade for the Guanyinqiao CBD targetting a 100 percent increase in the size of the commercial area and the addition of new facilities and a major new park by 2017.

Longfor Growing But Still Well Below Targets

One of the biggest stories in China’s real estate market this year has been slowing sales for projects in second and third-tier cities, and Longfor does not appear to be exempt from this trend.

According to first half results announced on July 10th, although Longfor’s June sales grew 6 percent in terms of value compared to last year (reaching RMB 4.6 billion) the company has only achieved 35.6 percent of its RMB 57 billion sales target for the period from January to June.

Last year Longfor’s net profits were RMB 8 billion ($1.28 billion), up 27 percent from a year earlier, and also surpassing analysts estimates.

Of the developer’s sales, the largest portion appears to come from western China, where it achieved contracted sales of RMB 7.48 billion in the first half, with the Yangtze River Delta contributing another RMB 6.19 billion in sales and the Bohai Basin area in northern China accounting for another RMB 5.45 billion in contracted deals.