Country Garden Says It Will Take Over Shui On Project in Foshan

Mainland developer Country Garden announced recently that it has signed a preliminary agreement with Shui On Land to buy a major stake in the Hong Kong-listed builder’s Foshan Lingnan Tiandi project in the southern Chinese city of Foshan. A report in the South China Morning Post indicated that the value of pending transaction could be approximately RMB 1.8 billion ($275 million).

The potential acquisition of a property within the 1.9 million square metre (20 million square foot) mixed-use development in Guangdong province by Country Garden would mark the latest in a string of asset sales by Shui On Land, which last year sold two office towers in Shanghai for a combined RMB 12.3 billion ($1.88 billion).

Country Garden president Mo Bin, who announced the pending transaction, also indicated that more deals between the mainland developer and Vincent Lo’s Shui On could be on the way. Shui On, which made its name by building the iconic Xintiandi project in Shanghai, is one of a number of Hong Kong developers to have sold projects to mainland competitors in the past year, as the long term outlook for the China market darkens and competition increases among home builders.

Country Garden Taking Over Foshan Project?

Shui On Land formally broke ground on Foshan Lingnan Tiandi in October 2008, when the developer was attempting to leverage the fame of Xintiandi to build similar heritage-based mixed use projects in a number of second and third tier cities across China, including Chongqing, Wuhan, Hangzhou and Dalian.

The SOM-designed project in Foshan was drawn up to combine residential and office buildings with retail, hotel, F&B, entertainment, and cultural facilities on a 650,000 square metre (7 million square foot) site. A Marco Polo hotel is already open on the site, and sales of luxury apartments in the development went on sale in Hong Kong in late 2012 for prices ranging from RMB 4 million to over RMB 5 million.

Now Country Garden is said to be buying an unspecified asset within the development and will be taking over further building there.

“We just signed agreement with Shui On Land for the Foshan (Lingnan) Tiandi project and we will be the lead developer,” Country Garden president Mo Bin was quoted as saying in the South China Morning Post.

Shui On confirmed having signed a preliminary agreement with an unspecified buyer for a stake in the Lingnan Tiandi project, but did not provide further details. A confirmed agreement is expected to be announced soon, and Mo indicated that Country Garden looked forward to further deals with Shui On Land.

Shui On Continues to Shed Assets

Once one of the highest profile foreign developers in China, in recent years Shui On’s expansion into China’s second-tier cities and struggles with clearing sites has weighed down the developer’s balance sheet as home prices and sales volumes have struggled outside of the mainland’s largest urban hubs.

In a drive to shed debt and focus on its core projects, Shui On already sold off an office block in its Chongqing Tiandi development to Sunshine Life Insurance for RMB 2.4 billion in 2013, and disposed of its Xihu Tiandi project in Hangzhou to another buyer in 2014.

In December, two Shui On subsidiaries agreed to sell an office tower in its Corporate Avenue project in Shanghai for RMB 5.7 billion ($885 million), in a deal that came less than five months after the developer sold two office towers in the first phase of that project to Hong Kong’s Link REIT for RMB 6.6 billion.

In May 2015 Shui On Group subsidiary SOCAM sold the Four Seasons Hotel in Pudong to local Chinese developer BM Holdings for RMB2.3 billion ($371 million). During the same month, SOCAM sold off its stake in a cement joint venture for HK$2.55 billion ($329 million).