Yuexiu Property yesterday announced that it is selling a minority stake in a project in Guangzhou to a subsidiary of Ping An Real Estate for RMB 2.3 billion ($359 million).
The two government-linked mainland firms have entered into a preliminary agreement for Yuexiu to sell 49 percent of a residential project in Guangzhou’s Baiyun district to Guangzhou Lianheng Real Estate Co, which is 50 percent owned by Ping An Real Estate, according to a statement to the Hong Kong stock exchange.
Yuexiu, which started life as an investment arm of the Guangzhou city government, had been under pressure to sell assets as the risks involved in the developer’s nearly $2.95 billion in offshore debt have worried ratings agencies as China’s currency has become less of a sure bet.
Yuexiu Sells Guangzhou Asset to Shenzhen’s Ping An
Yuexiu had announced on March 10th of this year that it was putting the 49 percent stake in the Guangzhou project for sale for a minimum bid of RMB 2.3 billion.
The project, which the company says is currently under construction with a target completion date of 2022, includes 30 high-rise towers of apartments and retail space. The site consists of four parcels of land totalling 198,938 square metres, with the company owning rights to 147,735 square metres of that, and a planned gross floor area of over 460,000 square metres. Plans for the project also include a school and other amenities on the site.
The Ping An subsidiary was the only bidder on the project stake, which traded at the minimum bid price.
Moody’s Downgrade Followed by Project Sale
Yuexiu’s March plans to sell the project followed soon after a February downgrade of the Hong Kong-listed developer’s credit by a major ratings agency.
On 23 February, Moody’s Investors Service downgraded Yuexiu’s Baa3 rating outlook to negative from stable, following the developer’s debt-fueled expansion in 2015, and potentially triggered by rising uncertainty regarding its large US dollar and Hong Kong dollar denominated debt obligations.
“The negative outlook on Yuexiu Property’s issuer rating reflects the deterioration in the company’s credit metrics, and Moody’s expectation that Guangzhou Yuexiu’s financial profile and ability to provide support to Yuexiu Property will weaken, due to a material increase in Guangzhou Yuexiu’s debt leverage,” Franco Leung, of Moody’s said in report published in late February.
Guangzhou Yuexiu is the government-owned parent of Yuexiu Property. While many developers avoided expensive land purchases during last year’s downturn, Yuexiu got aggressive, buying interests in six land parcels for a total consideration of RMB 7 billion during 2015.
Yuexiu Under Debt Pressure
A Wall Street Journal report published in August last year, after the company’s mid-year financials had been announced, noted that, “Out of Yuexiu’s 32 billion yuan ($5 billion) in bonds and loans, 59% of the debt was raised offshore in U.S. and Hong Kong dollars.”
In the statement announcing its sale of the stake in the Guangzhou project, Yuexiu said that the proceeds of the transaction would go toward refinancing its existing debts, as well as for future potential investments and for working capital.