Shui On Selling 65% Stake in Shanghai Project to State-Backed Fund for $170M

Shui On Land has agreed to sell a 65 percent equity interest in a Shanghai commercial project to a fund controlled by state-owned insurer Dajia Life for RMB 1.2 billion ($170 million).

The disposal is in line with Shui On’s asset-light strategy and capital recycling plans, the Hong Kong-listed developer said late last week in a stock exchange filing. Under the terms, the project company of the office and retail complex in Putuo district will transfer the 65 percent stake to a vehicle 82.56 percent owned by Dajia Investment and 17.36 percent owned by Shui On Investment (Shanghai) Ltd, with the balance held by a Dajia-controlled fund manager.

Shui On acquired the project site along Changshou Road at a government auction in 2019 for RMB 1.86 billion. Upon completion of the transfer, which is to be carried out in three instalments, Shui On will hold a 35 percent stake in the 63,363 square metre (682,034 square foot) development, which was completed in the second half of 2023, and the project company will cease to be a subsidiary of the group controlled by chairman Vincent Lo.

“The group intends to apply the proceeds from the transactions to fund the general working capital of the group,” said Shui On, which anticipates no material gain or loss on the deal.

Buyback Option

Known as Hong Shou Fang, the project sits along the southern side of Changshou Road, which runs east-west through the district, and to the west of Xikang Road. The property has access to metro lines 7 and 13 via Changshou Lu station, which lies 300 metres (328 yards) away, with the project located 3.5 kilometres (2.2 miles) northwest of the West Nanjing Road business district.

The complex’s two Grade A office buildings provide 48,000 square metres of gross floor area, while the retail marketplace — modelled after the group’s landmark Shanghai Xintiandi shopping and entertainment district — spans 15,000 square metres.

The buyer is set to pay an initial instalment of RMB 121 million within five business days of the 29 December signing date, with a second tranche of RMB 964 million to be transferred within 10 business days of the deal’s conditions being fulfilled and a third instalment of RMB 121 million due upon completion.

Shui On Xintiandi (SXTD), which operates the developer’s commercial properties, will provide asset management services to the project company upon completion of the deal. The deal’s structure includes a call option giving Shui On the right to buy back the entire stake from the fund after 2029 if annual performance is found to have negatively impacted the service income of SXTD.

Upbeat Earnings

Despite the cancelled Hong Kong IPO of its SXTD unit in 2022, Shui On has remained upbeat as it continues to churn out sales and profit figures that most mainland developers would envy.

In its interim report issued in August, the builder said net profit jumped 37 percent year-on-year in the first half of 2023 to RMB 618 million. Revenue in the six-month period climbed 46 percent to RMB 6.4 billion as property sales soared 90 percent to RMB 4.7 billion.

In December 2022, a joint venture led by Shui On won the land-use rights to develop a residential project on a plot in Shanghai’s Yangpu district with a bid of RMB 2.38 billion ($340 million). Shui On holds 60 percent of the JV and state-owned developer Shanghai Yangshupu the remaining 40 percent, with the partners set to build 90 homes across 22,000 square metres of gross floor area.