Real estate developer Shui On Land is selling its 5 Corporate Avenue project in Shanghai for RMB 3.32 billion ($545 million), the second asset sale by the developer in a week.
According to a December 4th statement by the Shanghai-based firm to the Hong Kong stock exchange, the unfinished project near Xintiandi in Huangpu district is being purchased by China Life Insurance Group. On November 29th, Shui On had already sold a property in Chongqing to Sunshine Life Insurance for RMB 2.4 billion.
5 Corporate Avenue is designed to have 79,000 square metres of gross floor area, including office and retail space, and is expected to be completed in 2014.
Developer Under Pressure to Reduce Debt
This sudden shedding of assets by Shanghai-based Shui On is said to be driven by pressure from investors to reduce its debt level.
A report by Bloomberg quoted Johnson Hu, a Hong Kong-based property analyst at CIMB-GK Securities Research as saying, “The company’s cash flow is very tight, and the management has said before it’s planning to sell some assets to improve this.”
In addition to the sale of Corporate Avenue 5 and the project in Chongqing, the company also last month sold a stake in its China Xintiandi subsidiary to Brookfield Property Partners of Canada for $500 million. China Xintiandi owns Corporate Avenue 1 and Corporate Avenue 2, as well as other office and retail properties in China.
An account in South China Morning Post spoke with an unnamed analyst who commented, “Shui On Land is under greater refinancing pressure compared with the other mainland developers as the company has an outstanding debt of about US$20 billion it has to settle in the coming 18 months.”
Shui On has also said that it may spin off its China Xintiandi unit for an IPO, however, delays in this offering have apparently forced the company to sell off other assets as an interim measure. While Shui On’s share price on the Hong Kong exchange originally climbed to HK$2.52 per share following the announcement of its Chongqing sale, it subsequently fell, and even after booking a RMB 192 million pretax gain from its Shanghai deal, the company’s stock closed the week down at HK$2.44 per share.
Insurance Firms Buying More Assets
For both its Chongqing project and the 5 Corporate Avenue sale, Shui On’s buyers came from China’s largest insurers, a trend that is likely to continue. China Life Insurance Group, better known as China Life, has been listed for nine consecutive years on the Fortune Global 500, and is the parent company of China’s biggest life insurer.
As part of a gradual loosening of restrictions on China’s insurance firms, in October this year the China Insurance Regulatory Commission announced that it would allow insurers to invest up to 30 percent of their total assets in real estate, up from the previous cap of 25 percent. This opening of the gateway to insurers’ capital has helped to drive acquisition of prime real estate assets, particularly in the office sector.
Corporate Avenue in Taipingqiao
5 Corporate Avenue is part of the second phase of Shui On’s Corporate Avenue project in Shanghai, and is situated at the intersection of Hubin Road and Ji’An Road, east of the Xintiandi shopping area. Phase two of Corporate Avenue is a complex of two office towers joined by a retail podium, and the entire complex will have a gross floor area of 156,000 square metres.
According to the statement with the stock exchange, China Life acquired the asset by purchasing Shanghai Xing Qiao Properties, which has the rights to own and develop Lot 126 of the Taipingqiao development project where 5 Corporate Avenue is located. Taipingqiao is the name given to the Xintiandi area under the master plan developed by Skidmore, Owings, Merrill in 1995.
Under the terms of the sale agreement for Xing Qiao, Shui On Land has the right to buy back the shares in the company within seven years after completion.
Also under the agreement, Shanghai Xintiandi, a subsidiary of Shui On Land, will provide management services such as administration services, leasing and financial management services to the project.