Guangzhou R&F Selling $1.3B London Project to CC Land Chairman for 13 Cents

Cheung Chung-kiu has once again come to the rescue of his Chinese billionaire builder brethren, with the chairman of mainland developer CC Land inking a preliminary agreement to buy a $1.3 billion London project from Guangzhou R&F Properties for HK$1 ($0.13).

In a deal which involves assuming at least $800 million of debt associated with the 1.1 million square foot (106,300 square metre) development in southwest London, a private company owned by Cheung has signed a letter of intent to buy One Nine Elms, as R&F struggles to keep the long-delayed complex solvent.

Originally scheduled for completion by 2017, the seven-year delay in the combined condo and hotel project has created an opening for buyers of units in the towers to take refunds, with R&F saying in a stock exchange filing on Tuesday that the proposed sale of the property could ease its liabilities and interest burdens.

“Certain sales milestones prescribed in the agreements in relation to the Target Group Loans have become increasingly difficult to meet which, if not met, may result in a default of the Target Group Loans and potentially a realisation value of the Target Group which is significantly less than the consideration for the Possible Disposal,” R&F said in the filing.

Cheung, who heads his Chongqing-based developer from the comforts of Hong Kong, has a history of being useful to his industry friends in their UK deals, including having bought out R&F’s stake in a joint project in the Nine Elms area in 2022, and fronting Evergrande chairman Xu Jiayin’s furtive purchase of what was then the UK’s most expensive home in a £210 million (then $274 million) 2020 transaction.

Discounted Sale

The transaction values the property, which is now said to be set for completion in April, at $1.3 billion – a 25 percent discount from its gross development value of $1.7 billion, according to an independent valuer’s report cited by R&F.

The project, which R&F had acquired from Dalian Wanda Group for £59 million in 2018 as Wanda sold down its overseas holdings in response to criticism by the Chinese government, includes 494 residential units and the UK’s first Park Hyatt hotel.

The project’s builder, Multiplex, announced in November that One Nine Elms had achieved practical completion, however, the tardiness of that milestone has stressed the development’s finances.

Market data cited by Bloomberg in a June account indicated that buyers had signed up for close to 300 units in One Nine Elms from 2014 through 2019, however, delays in completion meant that many of those contracts expired, allowing investors to cancel and get their deposits back.

An R&F representative told Bloomberg at the time that sales had not commenced and indicated that no units had been purchased as of mid-2023.

Debt Swap

Cheung’s proposed takeover of One Nine Elms includes the billionaire’s private company  inviting eligible holders of the project’s 2025, 2027 and 2028 bonds to tender their notes in exchange for perpetual securities issued by the vehicle, with the new instruments backed by the project’s future cashflows.

Cheung’s company would issue the perpetual bonds in two tranches of up to $400 million each and a separate tranche of up to $200 million, all of which will be offered for exchange in the tender. The deal also indicates an additional tranche of up to £820 million available for subscription to existing noteholders on a cash basis.

In the event of insufficient participation by the project’s noteholders, Cheung will underwrite any shortfall so that the minimum exchange of $800 million in principal is achieved.

The project’s holding company had a consolidated net liability of HK$6.2 billion ($789 million) against a carrying value of HK$3.2 billion ($405 million) as of December, with an aggregate loss of RMB 3.2 million ($0.5 million) in 2021 and 2022, according to the filing.

R&F’s proposed sale of the project is subject to approval by the company’s shareholders and the project’s lenders.

Troubled History

Wanda had purchased the site for One Nine Elms for £88.8 million in 2013 as its inaugural overseas project. Construction commenced in 2015 but ran into delays after the project’s first two builders walked away, with Multiplex taking over in 2017.

Construction again halted in 2022 after R&F reportedly stopped paying Multiplex amid liquidity struggles stemming from China’s property slump. In June of that year, R&F secured a £772 million facility from a consortium that included Apollo Global Management, Carlyle Group, and UK investment firms Crosstree Real Estate Partners and Precede Capital (then known as Précis Capital), to get the project restarted.

Roughly two-thirds of the facility reportedly came in the form of a senior loan from Apollo, while Carlyle and Crosstree each provided around half of the remaining mezzanine tranche, with Précis taking a minority position in the mezzanine piece.

One Nine Elms is Cheung’s second purchase of an R&F asset in London, with the CC Land boss buying out R&F’s half stake in their Thames City joint project for $340 million in May 2022.

The $230 million loss that R&F took on that disposal followed a $90 million loss that the developer booked just a few months earlier when it sold its Vauxhall Square mixed-use project to Hong Kong-based Far East Consortium for £95.7 million. Both of those projects are also in the Nine Elms area.

CC Land made a splash in the UK market in 2017 when it acquired the “Cheesegrater” office building from British Land and Canada’s Oxford Properties for $1.4 billion.

R&F’s exit is the latest in a string of withdrawals from the London market by Greater China investors this week, with the receivers of 5 Churchill Place in Canary Wharf selling off the office building previously owned by Shenzhen-based Cheung Kei Group for 60 percent below purchase price. Also this month, Hong Kong property tycoon Lai Wing-to put a portfolio of three West End mixed-use properties on the block.

In January, defaulted mainland developer Country Garden put up for sale its Calico Wharf residential development in East London, while a luxury apartment project at Mayfair’s 60 Curzon Street that had been backed by China’s Cindat Capital and CITIC Capital went into administration after defaulting on a loan.

R&F’s proposed disposal comes after its co-chairman and CEO Zhang Li, who occupied an apartment in One Nine Elms last year while being held for extradition to the US, stepped down in December after dodging incarceration in the US for bribing a local official in order to secure approvals for a San Francisco mixed-use project.