The richest guy in Asia is bearish on China, and is now more than a billion dollars wealthier because of it.
Hong Kong billionaire Li Ka-Shing has disposed of his third major real estate asset in Greater China within the last three months with the recently announced sale of an office project in Shanghai’s Lujiazui area for US$1.155 billion.
According to a report by Esther Fung in the Wall Street Journal, China’s Bank of Communications has agreed to purchase the Oriental Financial Center (東方匯經中心) from Li’s Hutchison Whampoa and Cheung Kong Holdings, both of which hold a 50% stake in the project. An earlier report from Bloomberg listed China’s Everbright Group as taking a six percent stake in the deal as well.
The 31-story 110,000 sqm tower in the city’s Pudong district is expected to be completed during the middle of next year. According to the most recent quarterly report from real estate consultancy Jones Lang LaSalle, office rents in Pudong, are currently rising more robustly than in the Puxi area of Shanghai west of the Huangpu river.
The recent strong rent performance in Pudong may help to explain the high value fetched in the asset sale as previous reports had estimated the sale price to be less than $1 billion.
Selling One China Asset Each Month
This most transaction is the third sale by Li’s companies of real estate assets in China and Hong Kong over the last three months.
During September, Hutchison and Cheung Kong announced that they were selling the Metropolitan Plaza in Guangzhou’s Liwan district for US$390.7 million. The Guangzhou deal was preceded at the end of July with the sale of Cheung Kong’s Kingswood Ginza shopping mall in Hong Kong for US$754 million to a REIT controlled by the company.
In addition to the sale of real estate assets, Li is also reported to be looking for a buyer for his chain of Watson’s pharmacies in Hong Kong and mainland China.
Chinese Buy Europe as Westerners Rush to Buy China
Mr Li is reportedly redirecting his investment activities to Europe. According to a recent media report, Hutchison Whampoa has already signed five investment deals in Europe this year, with a total value of more than $4 billion.
This divestment from China happens as global private equity firms and other western institutional investors have become more aggressive about buying Chinese real estate assets. In recent months, Blackstone, Equity International, Carlyle Group and other global firms have all made major investments in China’s property market, despite indications that rents may have already peaked in Shanghai.
Li Ka-Shing Improves on His China Investment Record
By selling the Oriental Finance Centre project for $1.155 billion together with Cheung Kong, Hutchison Whampoa declared to the Hong Kong stock exchange that it would realise a capital gain of $237 million on its investment. Assuming that Cheung Kong, which owns the other 50 percent of the project realises a similar gain, then Li’s companies will have achieved gains of nearly $500 million on the project.
The site where Oriental Financial Center is being built was acquired by Li’s companies in 2006 for RMB832 million ($136.4 million).
In 2004, Hutchison developed the 98,300 square-metre office tower, The Centre, in central Shanghai, and made a substantial profit selling it to Hong Kong-based Asia Pacific Land for RMB 4.9 billion in the summer of 2008.
Whether or not Li Ka-shing was able to time the market, when the Shanghai real estate market slowed down in 2009, Asia Pacific Land was caught short of cash and had to sell The Centre to a Chinese insurer for RMB 4.4 billion – a RMB 500 million loss.