A consortium led by InfraRed NF has closed a $63.8 million round of mezzanine financing in support of projects being developed by Hong Kong-listed property developer Fullsun International, according to an announcement on Monday by the private equity real estate investment firm.
The structured loan deal is secured by a set of three ring-fenced mainland China developments, with Singapore-listed developer Metro Holdings, Dubai-based Global Gate Capital, an unidentified global alternative investment management firm and a Chinese financial institution joining InfraRed NF’s consortium in this latest deal, according to the company’s statement.
The agreement with Fullsun, which is a subsidiary of Fuzhou’s Fusheng Group brings to $156 million the amount that InfraRed NF and its partners have invested in projects being developed by the Fujian-based real estate developer within less than 10 months. In its statement, the Hong Kong-based private equity firm indicated that tighter lending conditions in mainland China were producing a market for alternative credit sources.
Loan Backed by Projects in Changsha and Zhongshan
“China’s long-term deleveraging continues to create compelling risk-adjusted returns for us in both the value-add and mezzanine space. This transaction provides further evidence of our leadership position in structuring private credit in Greater China,” Stuart Jackson, Chief Executive Officer of InfraRed NF said.
The company sees this latest loan as a continuation of the firm’s strategy of concentrating its lending activity on projects in China’s megahubs, which InfraRed says benefit from higher than average GDP per capita, population growth rates, and infrastructure investment.
The new financing adds to $92.2 million provided in a previous investment round announced earlier this year which was secured by a pair of projects near Meixi Lake in the Hunan province city of Changsha, as well as by an office asset owned by Fullsun in Hong Kong. For this latest tranche the developer has added a residential project in the city of Zhongshan in Guangdong province to the assets backing the loan deal.
Fullsun, which gained a listing on the Hong Kong exchange in January 2018 via a reverse merger, entered the Hong Kong housing market in May of last year with the HK$920 million ($117 million) purchase of a 8,060 square foot (749 square metre) development site in the Ho Man Tin area of Kowloon from Easyknit Group.
Bank Credit Squeeze Creates PE Lending Market
As part of its ongoing determination to curb speculation in the housing market and put a lid on home prices Chinese regulators have been clamping down on funding for new development projects on the mainland this year.
Financing for property developers in mainland China fell by over 58 percent in August compared to July, according to government data. New financing provided to home builders amounted to RMB 36.83 billion ($5.15 billion) last month — the second-lowest total this year.
The credit-tightening comes after the China Banking and Insurance Regulatory Commission (CBIRC) in July began a series of inspections of banks across the country aimed at curbing potentially high risk loans to developers and eliminating illicit mortgage practices.
This month executives at China’s largest bank, ICBC have reportedly been told to reduce or freeze their level of lending to the real estate sector, while accounts from Shanghai Pudong Development Bank indicate that the bank will be allowed to make small increases in property lending only if it expands its loans to other, government-favoured sectors.
InfraRed NF Expands List of Greater China Credit Deals
At the time of its previous financing deal with Fullsun, InfraRed NF indicated that the developer would be using the cash to fuel an acquisition-based expansion strategy, after the Changsha firm acquired or took partial control of four companies last year.
According to its interim report, in the first half of 2019 Fullsun’s revenue reached RMB 299 million, an increase of 313 percent from the first half of its previous fiscal year, which ran from 1 April 2018 through 30 September 2018.
At the end of June the group had 14 projects in its development pipeline amounting to a total gross floor area of approximately 1.66 million square metres (17.9 million square feet).
InfraRed NF is a Hong Kong joint venture between London’s InfraRed Capital Partners, which has $12 billion in assets under management, and Vervain, an investment unit of Hong Kong-headquartered developer Nan Fung Group.
To date, InfraRed NF has completed 11 credit investments in Greater China, amounting to over $650 million, with the company indicating that it has already exited from seven of those deals. In a similar investment concluded in July of last year, InfraRed NF, along with two partners, invested $88 million into a $900 million project by local developer Keyne Properties in the city of Yangzhou in Jiangsu province.