SOCAM, the property developer and construction materials company belonging to Hong Kong’s Shui On Group, this week sold off the Four Seasons Hotel and associated luxury apartments in Shanghai’s Pudong district for RMB632.5 million ($102 million) in cash, plus assumption of onshore and offshore loans that value the property at RMB2.3 billion ($371 million).
The sale of the five star hospitality property came on the same day that SOCAM parted with its 45 percent stake in a major mainland cement maker for HK$2.55 billion ($329 million).
The pair of disposals are the latest in a series of asset and equity sales by companies belonging to Hong Kong billionaire Vincent Lo, whose Shui On Land also confirmed on Wednesday that it was trying to sell part of its Corporate Avenue commercial complex in downtown Shanghai, a story which was first reported in Mingtiandi during March.
Developer Points to Weak Market as Reason for Asset Sale
In disposing of the five star hotel, which is located next to the Shanghai World Financial Center in the city’s Lujiazui business district, SOCAM is also ridding itself of HK$873.7 million ($112 million) worth of loans. SOCAM sold a pair of project companies, both of which were 70 percent owned by the Hong Kong-listed developer to Wing Tat Development, an offshore subsidiary of local Shanghai developer BM Holdings. BM already has several luxury hotel properties, including the Intercontinental Shanghai Puxi.
The Pudong Four Seasons is located in the 21st Century Tower along Century Boulevard, and was opened by SOCAM in 2012, after the developer acquired the 26th to 49th floors of the building in 2010.
In a statement to the Hong Kong stock exchange the developer said that it was choosing to dispose of the property at this time because “there is an oversupply of luxury hotel rooms with the growing number of high-end hotel properties coming on-stream,” in Shanghai.
SOCAM also noted the negative impact that “the prevailing sluggish luxury property market in the PRC,” was having on sales of its apartment units. The developer stated that it plans to divest of its property assets in an orderly manner and could use the asset sale to reduce the debt on its balance sheet.
Cement Company Sold to JV Partner
In another move aimed at fortifying its finances, SOCAM sold off its 45 percent interest in Lafarge Shui On Cement Limited, a mainland-based cement producer. SOCAM’s partner in the cement firm, French building materials group Lafarge, is taking over SOCAM’s shares to gain 100 percent control over the former joint venture company.
In a statement to the Hong Kong exchange, SOCAM said that the sale was prompted by the company’s “overall business strategy to exit from the cement operation in the mainland.”
SOCAM lost $177 million in 2014, falling even deeper into the red than it had in 2013 when it lost $114 million.
Shui On to Sell Off Corporate Avenue in Shanghai
The pair of disposals by SOCAM fall into a series of cash-raising moves by the company’s chairman, Vincent Lo, who heads the Shui On Group.
Lo transformed a little-known Hong Kong developer into a force in mainland real estate with the success of Shui On’s Xintiandi project in downtown Shanghai, but in the 14 years since the urban renewal project debuted, the company seems to have tripped over its own ambitions.
In a press conference following Shui On’s annual meeting yesterday, Lo confirmed that Shui On is trying to sell One Corporate Avenue in Shanghai, confirming a story which was first reported by Mingtiandi in March of this year. The property tycoon added that Shui On has also put the third phase of the commercial complex on the market, hoping to raise RMB10 billion ($1.6 billion) from the asset disposals.
The firm said that it is currently holding discussions with potential buyers and hopes to conclude a sale by the end of June.
Corporate Avenue Sale Another Attempt to Reduce Debt
The sale of the core commercial assets next to Shui On’s most famous project would be the latest in a long series of asset disposals aimed at shoring up a balance sheet burdened by over-aggressive expansion. As sales of homes have slowed down recently, the developer has been squeezed between falling revenues and high financing costs.
In August last year Shui On sold two Shanghai hotels for a total of RMB 2.7 billion ($439 million) to Hong Kong-listed developer Great Eagle Holdings, which is controlled by Lo’s older brother and other family members.
The hotel sale was preceded in December 2013 by the sale of projects in the second-tier cities of Chongqing and Hangzhou bringing in more than RMB 2.4 billion ($393 million) for the developer. In Shanghai Shui On sold its 5 Corporate Avenue tower, which is part of the second phase of the Corporate Avenue project, to China Life Insurance for RMB 3.32 billion ($545 million) that same month.
The asset sales came after the developer failed to build support for an IPO of its China Xintiandi subsidiary in 2013.
In November that year, Shui On raised as much as $750 million by selling off approximately 21 percent of China Xintiandi to Canadian real estate investment group Brookfield.