Mainland Builder Mingfa Exiting Stake in Shouson Hill Project for $82M

Mingfa Group has agreed to sell its 20 percent stake in No.15 Shouson, a luxury residential project in Hong Kong Island’s Deep Water Bay, to existing partners for HK$650 million ($82.8 million), as the mainland developer looks to raise some quick cash to shore up its finances amid turmoil in China’s property market.

Joint venture partners CC Land Holdings and Emperor International will pay HK$325 million each for two 10 percent stakes to buy out Mingfa’s interest in the 15-home development at Shouson Hill, the Nanjing-based builder said late Friday in a filing with the Hong Kong stock exchange.

Mingfa’s disposal comes after the chairman of defaulting developer Shimao Group, Hui Wing Mau, sold his 40 percent stake in No.15 Shouson earlier this year for HK$1.04 billion to an 80:20 joint venture of Chongqing-based CC Land and Hong Kong-listed CSI Properties. Upon completion of the latest deal, the project company will be held to 50 percent by local builder Emperor, 42 percent by CC Land and 8 percent by CSI.

“The directors considered that the disposal represents a good opportunity for the group to crystallise the gain in its minority interests in the property amid the uncertainties over the luxury residential property market in Hong Kong,” Mingfa said in the filing. “The directors expect that the net proceeds from the disposal will enhance the financial position of the group and to provide sufficient capital reserve to fulfil its repayment obligations.”

Project Perking Up

Located at the junction of Shouson Hill Road West and Wong Chuk Hang Path, No.15 Shouson comprises 15 detached villas yielding a combined 88,000 square feet (8,175 square metres) of gross floor area.

The project in Shouson Hill, an area close to the homes of Hong Kong billionaires including CK Asset’s Li Ka-Shing and Alibaba’s Joe Tsai, spans a 116,896 square foot site and sits less than a 3 kilometre (1.9 mile) drive from the Aberdeen Tunnel, a route that shortens the travel time between Wong Chuk Hang and Causeway Bay, one of Hong Kong’s busiest commercial districts.

The proposed stake sale by Mingfa, founded by the late Xiamen businessman Wong Wun Ming, values the development at HK$3.25 billion. The company expects to recognise a gain of HK$133 million from the disposal before transaction costs.

The purchase price for Hui’s 40 percent stake, as announced in January, had put the project’s value at HK$2.6 billion — lower than the HK$2.7 billion paid for the site in 2014, which valued the project at the equivalent of HK$30,888 per square foot of maximum floor area.

No.15 Shouson was originally scheduled for completion in 2017, but the job stretched on for an extra four years. Buyer interest stirred to life in recent months with the June purchase of House 7 for HK$870.2 million (HK$108,346 per square foot of area), marking Hong Kong’s priciest residential transaction this year, followed by a July deal in which the smaller House 11 sold for HK$435 million (HK$92,044 per square foot).

Weathering the Storm

For Mingfa, the unloading of its stake in No.15 Shouson takes place as the developer navigates China’s real estate crisis, with the company’s contracted sales for the first six months of 2022 having plunged 53 percent year-on-year to RMB 3.1 billion (now $440 million).

Mingfa posted unaudited revenue for the first half totalling RMB 6 billion, down 39 percent year-on-year, as profit attributable to shareholders tumbled 74 percent to RMB 316.8 million, according to the group’s interim report released last week.

The developer was still controlled by Wong Wun Ming at the time of his July death, but he had faded from public view since falling foul of mainland anti-graft officials in 2016.