Rendering of Nine Elms Square project
China’s banking regulator may have ordered a review of Dalian Wanda’s borrowing practices, and the mainland has instituted controls on cash outflows since late last year, but that hasn’t stopped China’s richest man from agreeing to spend £470 million ($595 million) to pick up a new project in London.
After walking away from talks to buy a piece of prime London real estate next to its One Nine Elms project last month, China’s largest commercial developer agreed last week to pick up the Nine Elms Square 10.2 acre (4.13 hectare) project from a joint venture of UK builder St. Modwen Properties and France’s Vinci, according to a stock exchange announcement by St. Modwen.
Wanda’s deal for its second UK project was announced after the company is said to have been singled out by the China Banking Regulatory Commission (CBRC) for scrutiny, along with three other prolific cross-border investors, due to the potential for “systemic risk” from their borrowings. The mainland banking regulator is said to have asked financial institutions in mid-June to review borrowing by not only Wanda, but also HNA Group, Fosun International and tycoon Li Yonghong’s Rossoneri Sport Investment – which acquired Italian soccer club AC Milan for $828 million last year.
New London Project Could Bolster Wanda’s First UK Deal
Under the terms of the agreement signed by a Hong Kong subsidiary of Wanda, the company will take over the development of the Nine Elms Square project, which has received outline approval for three towers of between 32 and 54 storeys offering 1,821 apartments. Although detailed plans have not been revealed, the project is described as a residential-led mixed-use development that was designed by architects Skidmore, Owings and Merrill.
If all goes according to plan, Nine Elms Square will complement Wanda’s long-delayed One Nine Elms project right next door, envisioned to be a 1.14 million square foot mixed-use residential and hotel complex featuring twin towers with 437 high-end apartments and a Wanda Vista hotel. Wanda bought that site for £88.8 million in 2013, in its first British property deal.
The adjacent location of the Nine Elms Square site, and Wanda’s troubled history with One Nine Elms may help to explain the mainland developer’s determination to pick up this latest project.
One Nine Elms is already on its third general contractor, after being unable to come to terms with two other leading engineering firms on the construction of its flagship UK property. According to market sources familiar with One Nine Elms site who spoke with Mingtiandi, the project faced engineering and construction challenges that made it difficult to develop as an individual project.
More Than 20,000 Homes on Way Near Battersea Power Station
In Wang Jianlin’s world, walking away from the table doesn’t mean no
The formerly industrial Nine Elms area in south-central London is the scene of intense construction, with Wanda and 18 competitors building more than 20,000 homes, most of them luxury apartments, along with retail and office space.
St. Modwen and Vinci entered discussions with Wanda for the Nine Elms Square site after Beijing’s Macrolink Properties reportedly walked away from the project in March. Last month, it was reported that Wanda too had bailed out on the project, letting a lock-out period expire. The sellers said that discussions were ongoing but that they would begin looking for alternative buyers.
Some speculated that Wanda’s decision to pass on the project may have been driven by challenges facing the London neighborhood. Prices for new homes in south-central London slid by 6.8 percent in 2016, according to global property consultancy JLL, and the flood of housing in the Nine Elms pipeline is driving fears of oversupply. In retrospect, however, Wanda’s walk-away looks more like an effective negotiating ploy.
China’s Richest Man Bags Another Overseas Deal
The latest deal adds to Wanda’s $15 billion in overseas investments, ranging from properties to cinema chains and sports firms. The group controlled by China’s richest man was recently reported to have landed a $700 million loan from Ping An Bank for the construction of a billion-dollar, mixed-use luxury skyscraper that will be Chicago’s third-tallest building.
The acquisition of Nine Elms Square is also a vote of confidence in the London redevelopment area, where Wanda has previously struggled to make progress on its other big project. The construction of One Nine Elms, a Kohn Pedersen Fox-designed residential and hotel property with an expected cost of $1.1 billion, was long stalled with two previous contractors walking away. Construction is now said to be underway, after Wanda hired its third general contractor in January.
It’s curious to me that the CBRC (aka; the central government), under the directive of Xi Jinping, orders all firms such as Wanda, HNA, Anbang and Foshan, etc., to cease overseas acquisitions and mergers, yet, Wang is permitted to consummate this deal?
What’s going on? What signal does this give?
As with many things in China, financial regulation is more shades of gray than black and white. While the CBRC has asked banks to scrutinize lending to Wanda and its cohort, and regulators are watching overseas acquisitions, there has been no shutdown of such deals. That said, let’s see if Wang Jianlin’s check clears on this one.