Fosun and SOHO Bund Deal a Bad Blind Date

In a report today on the Wall Street Journal, Esther Fung looks into the strange partnership of China real estate developers Fosun and SOHO for a site on Shanghai’s Bund.

As announced recently by SOHO, and subsequently denounced by Fosun, SOHO has allegedly agreed with Shanghai Zendai and cash-strapped Greentown China to acquire their combined 50 percent stake in a 45,000 square metre commercial property south of Shanghai’s Bund area.

The next day, Fosun, another of China’s largest developers and the owner of the remaining 50 percent of the project, said that they were surprised by the announcement and that the deal had somehow by-passed a right of first refusal that was part of their agreement with Zendai and Greentown.

Really? Someone is buying half of one of your properties for RMB 4 billion and you knew nothing about it? I rather doubt that Pan Shiyi got the boss of Zendai on the phone, said, “Hey! I got an extra RMB 4 billion that I haven’t got much to do with — how about giving me that Bund site, eh?” Let’s assume that even in the wild west world of China commercial real estate there were a few lawyers and accountants involved which means at least several weeks of meetings.

It seems hard to believe that given the size of the project and the developers involved, that Fosun could really have been surprised by any transaction involving the asset. So either Fosun is not being truthful about their position, or this deal is just a stunt by SOHO to gain more publicity.

Keep in mind that there have been numerous reports in the local media that SOHO has dramatically over-stated their cash position, and the company is likely to struggle to meet their obligations during 2012. If SOHO is broke as these reports assert it to be, then could this purchase agreement be an attempt to appear cash-rich without having to actually sign any checks?

Either Fosun is just trying to renegotiate a deal which it failed to win, or SOHO could be faking a purchase to maintain the illusion of being a high-roller. In any case, 2012 will be an exciting time to watch China’s developers adapt to some new market conditions.