Soho China Confirms Buyout Talks Following Report of $4B Blackstone Offer

Mainland commercial developer Soho China has confirmed that it is considering buyout offers for the Hong Kong listed firm, just two days after news reports indicated that it had entered into exclusive discussions with Blackstone.

In an announcement to the Hong Kong stock exchange, the Beijing-based developer said that, “the Company has been in discussions with overseas financial investors to explore the possibility of a strategic partnership (the “Potential Transaction”), which may or may not lead to a general offer for the issued share capital of the Company (“Shares”).”

The company, which is led by husband and wife team Zhang Xin and Pan Shiyi, cautioned that no decision had been made to proceed with the potential sale, which reports indicate would be worth over HK$31 billion ($4 billion). Soho’s announcement did not mention Blackstone by name, and the US fund management giant has thus far declined to comment on the reported deal.

Blackstone’s Biggest China Bet

Following the announcement last night, trading in Soho’s shared recommenced today after having been halted on Tuesday after the news of the potential buyout had first been reported by Reuters.

Blackstone is said to be offering HK$6 per share to take Soho China private – a more than 100 percent premium over what the company’s stock had traded for on Monday of this week. Shares in Soho closed at HK$4.10 today.

Should the buyout of the office developer proceed, it would be Blackstone’s biggest investment ever in China’s real estate sector – an industry where the company has previously invested billions of dollars in residential, retail and logistics developers, as well as making numerous trades of single assets.

In 2013 the private equity firm led by financier Stephen Schwarzman had spent a reported $400 million to acquire a 40 percent stake in SZITIC Commercial Property Co, a mall developer better known as SCP. After building out a development portfolio of shopping centres, in 2016 Blackstone sold off its interest in SCP to a consortium led by mainland developer China Vanke for $1.9 billion.

Buying a First Tier Office Portfolio

Soho China was first reported to be looking for a major exit in October of last year, well before the coronavirus hobbled the mainland economy, with Blackstone mentioned at the time as a leading candidate to buy an $8.6 billion portfolio of commercial assets from the Beijing-based developer.

The buyout is also reported to involve Blackstone taking over Soho China’s debt, which totalled RMB 32.68 billion ($4.70 billion) at the end of June last year, according to the developer’s interim report.

Soho has a portfolio of eight investment properties in its portfolio, with four office buildings each in Shanghai and Beijing. Known for commissioning high profile architects such as Zaha Hadid for projects built grade A, if not prime office projects, Soho’s office assets total 825,851 square metres (8.9 million square feet) according to the company’s most recent annual report.

Developer for Hire

Having shifted to a “build to hold” strategy in 2012, Soho has struggled to make money from rental income, and has enjoyed greater success from selling completed office buildings to investment funds.

In 2018 the developer sold two buildings in its Sky Soho project in Shanghai’s Hongqiao area to Gaw Capital for $798 million, after having sold a 100,000 square metre piece of that complex to Chinese travel portal C-Trip in 2013.

The developer had sold its Soho Hongkou project to a consortium including Keppel Land China, Alpha Investment Partners and Allianz Insurance for RMB 3.6 billion in 2017.