Even the world’s largest real estate fund manager is finding business in China a bit tougher this year, as Blackstone announced on Friday that its $3 billion buyout of developer Soho China had been cancelled after failing to win approval from mainland authorities.
In a joint statement with the developer controlled by mainland real estate personalities Pan Shiyi and Zhang Xin, the two parties said they would not extend the schedule for Blackstone to purchase at least 54.93 percent of Soho’s Hong Kong-listed stock, noting that China’s State Administration for Market Regulation (SAMR) had not yet approved the transaction.
That approval from the mainland anti-monopoly bureau was among the preconditions for Blackstone to be able to follow through on what would have been its biggest China real estate deal ever, with some analysts tying the fund manager’s failure to win regulatory approval for the deal to rising US-China tensions.
“The market can only see SAMR’s inaction as an indication of worsening economic relations, with the US and China each appearing increasingly wary of investment by the other,” said Brock Silvers, chief investment officer at Hong Kong-based Kaiyuan Capital. He added that, “Blackstone boss Stephen Schwarzman has been among the biggest investors in China, and set up the Schwarzman Scholars programme at Tsinghua University, so potential inbound investors may see little hope for their own deals.”
Blackstone had offered HK$5.00 ($0.64) per share for the outstanding equity in Soho China in a deal that was announced on 16 June, with entities controlled by Soho chief executive Zhang Xin having committed at the time to selling a 54.93 percent stake to Blackstone funds.
However, Friday’s noticed stated that, “As at the date of this announcement, none of the Pre-Conditions to the making of the Offer has been satisfied.” Without pointing to any specific preconditions, the notice added that, “The Parties have concluded that the Pre-Conditions are unable to be satisfied on or before the Long Stop Date.”
The original announcement included as the first precondition to the transaction, “the submission of a Notification of Concentration of Undertakings by the Offeror to, and acceptance by SAMR, under PRC Anti-Monopoly Law in respect of the Offer and the clearance or deemed clearance (through the expiration of the relevant statutory time periods for review by SAMR) by SAMR under PRC Anti-Monopoly Law of the Offer (provided that any conditions attached to the clearance imposed by SAMR are reasonably acceptable to the Offeror).”
A joint update by the two companies on 6 July noted that Blackstone had already submitted the required documents to the SAMR, but warned that completion of the deal could face delays. Then on 6 August, a follow-up announcement said Blackstone had provided additional materials in response to requests by the regulator, with SAMR having confirmed on 2 August that all necessary documents for review under China’s anti-monopoly law had been received.
On 6 September, however, a joint announcement to the Hong Kong exchange indicated that SAMR had told Blackstone that its review of the transaction was still in progress. The announcement added that Blackstone, “has received further requests to provide additional information for the regulators’ review,” while noting that there was no clear time frame for completing the process.
Successful completion of the buyout would have given Blackstone control of Soho China’s 826,406 square metre (8.9 million square foot) portfolio of commercial properties in Shanghai and Beijing.
Led by trophy projects such as the Zaha Hadid-designed Wangjing Soho in Beijing and Bund Soho on Shanghai’s storied riverfront, the collection includes five buildings in China’s capital that were between 60 and 68 percent occupied as of 31 December, with the four in Shanghai from 82 to 97 percent full at the same interval.
Second Time Unlucky
Friday’s announcement marks the second time that Blackstone has been frustrated in its efforts to take over Soho China after the developer had announced in March last year that it was in talks regarding a potential buyout, with Blackstone having been reported as its suitor at the time.
Soho China called those discussions dead in August 2020 after the COVID-19 pandemic had emptied offices and dented the valuation of office properties across Asia. Media reports in late 2019 indicated that Soho China had put its portfolio on the market as a package after years of selling off individual projects.
For Blackstone, the DOA deal is a rare China setback after the fund manager has completed acquisitions across the industrial, commercial and residential sectors over recent decades and once counted mainland sovereign fund China Investment Corporation (CIC) among its largest investors.
Last November, Blackstone agreed to buy a logistics park in Guangzhou from developer Guangzhou R&F for $1.1 billion as its largest-ever purchase of a single China warehouse property.
Also during 2020, the New York-based investment manager spent $150 million to acquire a tranche of Series A perpetual preferred shares of NASDAQ-listed mainland data centre operator 21Vianet. In 2019, Blackstone had acquired a $480 million stake in the Asian division of US mall developer Taubman Centers.
Blackstone chairman Stephen Schwarzman in 2016 led the establishment of the Schwarzman Scholars programme at Beijing’s Tshinghua University, including personally donating $100 million of the $200 million in funding raised to establish the study initiative modelled after Oxford University’s Rhodes Scholar programme.