Embattled Chinese builder Sino-Ocean Group Holding has received a bailout from its largest shareholder China Life Insurance (Group) Company.
Sino-Ocean Group will sell its entire 10 percent stake in the China Life Financial Centre office tower in Beijing to two China Life subsidiaries for RMB 230 million ($31.8 million), the developer said in a filing to the Hong Kong stock exchange last week.
China Life, which owns 30 percent of Sino-Ocean, is helping the builder to record an expected net gain of RMB 164.9 million from the sale, which is almost 2.5 times the net asset value of the stake, according to its statement. Sino-Ocean said it will use the sales proceeds as general working capital.
The state-owned life insurance company, which previously owned 90 percent of the grade A office building, will become its sole owner after the transaction, with the deal being announced as Sino-Ocean continues to struggle to meet its debt obligations.
China Life Takes Over
Opened in 2019, China Life Financial Centre is situated in Beijing’s “superblock” area in Chaoyang District. Located just south of the CCTV building in the capital’s Guomao area, space in the 39-storey building is currently available for lease at an asking price of RMB 500 per square metre per month, according to a listing by JLL.
Tenants currently occupying the building include accounting firm Deloitte, reinsurer Swiss Re Group, and a fund management joint venture of Manulife. With China Life also occupying some of the floors, occupancy in the building is about 90 percent, according to market sources.
With Sino-Ocean and China Life having co-developed the Skidmore, Owings and Merrill-design tower, this latest deal marks the second time that the insurer has bought equity in the project from its partner.
Amid a market downturn in 2012, Sino-Ocean had sold 20 percent of the project to China Life for RMB 141 million, reducing its interest to 10 percent. The two had jointly acquired the site in July 2011 for RMB 2.66 billion.
Strong Parent, Weak Subsidiary
Sino-Ocean has maintained relative stability amid China’s property crisis thanks to its focus on higher-tier cities and partial state ownership.
The developer’s contracted sales fell by 17 percent to RMB 61 billion in the first eight months of 2022, compared to an average 30 to 40 percent slide for most other major developers.
However, Sino-Ocean has shown signs of financial strain in recent months. Last month Sino-Ocean Capital Holding Limited, a 49 percent-owned subsidiary of the group, defaulted on a $20 million bank loan from Macau-based Luso International Banking Ltd. The subsidiary has also delayed payment for a RMB 1 billion domestic bond puttable last month.
The developer’s worsening liquidity caused ratings agency Fitch to cut its long-term foreign currency issuer rating for the developer to “BB” from “BB+” last month, ranking it one notch further down into junk territory. Moody’s had downgraded Sino-Ocean in August, with Fitch forecasting a 21 percent decline in Sino-Ocean’s contracted sales for the full year of 2022.
With its property unit under pressure, China Life has been injecting liquidity into Sino-Ocean over the past few months.
In July, the insurer provided an RMB 4 billion loan to Sino-Ocean, with the developer pledging its 50 percent interest in Sino-Ocean Taikoo Li Chengdu, a JV between Sino-Ocean and Swire Properties, as collateral
In April, China Life paid RMB 3 billion for a 90 percent stake in Sino-Ocean’s share of phase one of Beijing’s Indigo mall, which is a 50:50 JV between the developer and Swire, according to a report by the Securities Daily.
With its sales sliding and bond yields rising, the developer has also found other insurers ready to buy its assets, with Ping An Life Insurance agreeing in June to purchase Sino-Ocean’s stake in a commercial project in Beijing’s Fengtai district for RMB 5.02 billion.