Country Garden Buys Foshan Project from Shui On for RMB 1.7 Bil

Hong Kong-based developer Shui On Land continued to part with once-prized assets this month by selling a project in Foshan, Guangdong province to mainland developer Country Garden for RMB 1.73 billion ($267 million).

Shui On, which once rebuilt the concept of downtown Shanghai with its Xintiandi entertainment district declared sold off a company holding rights to a plot approved for building 231,500 square meters of gross floor area in its Lingnan Tiandi development.

The Foshan project sale is apparently the second time this year that companies in the Shui On group have declared a loss in selling off sites in China’s lower tier cities. In 2015, the developer founded by Hong Kong property scion Vincent Lo brought in RMB 12.3 billion ($1.9 billion) by selling two office buildings in its Corporate Avenue complex in Shanghai.

Shui On to Book RMB 90 Million Loss on Foshan Deal

In a statement to the Hong Kong stock exchange late last week, Shui On said that it will record a loss of approximately RMB 90 million ($13.9 million), after the transaction is complete, with the loss representing the difference between the project sale price and Shui On’s prior investment procuring and developing the site, as well as estimated taxes and other expenses in relation to the disposal.

The loss on its Foshan project comes after Lo’s SOCAM Development, which is also part of the Shui On Group sold a mixed-use development in Zunyi, a third-tier city in southern China’s Guizhou province to Country Garden at a loss of RMB 206 million. In an announcement to the Hong Kong stock exchange SOCAM explained that the RMB 388 million transaction was “part of the Group’s strategic monetisation plan for its property portfolio, which will make a positive contribution to the cash flow and financial position of the Group.”

Shui On said that the proceeds from the Foshan deal, which had first been announced by Country Garden in late February, are ear-marked for general financial purposes.

Country Garden, which is a top ten developer on the mainland, paid for this latest acquisition in cash, with the deal still subject to relevant government approvals.

Shui On is not the first Hong Kong developer to sell off projects to mainland competitors in recent months, with New World Group having sold a development in Qingdao, Shandong province, two pieces of land in Shanghai’s Qingpu district, and a project in Beijing, plus one each in Chengdu and Guiyang, Guizhou province to Evergrande Real Estate last year.

Evergrande also bought projects from Hong Kong-based Chinese Estates in Chengdu and Chongqing in 2015.

Xintiandi Developer Continues to Rebuild Balance Sheet

Shui On Land reported improving sales during the first quarter of 2016, signing deals for RMB 5.9 billion in new space amounting to a nearly five-fold increase over the same period in 2015.

The improving revenue situation is most welcome for a developer that has found itself in a cash-crunch after trying to spread its Xintiandi formula across a number of Chinese second and third-tier cities.

In a drive to shed debt and focus on its core projects, Shui On already sold off an office block in its Chongqing Tiandi development to Sunshine Life Insurance for RMB 2.4 billion in 2013, and disposed of its Xihu Tiandi project in Hangzhou to another buyer in 2014.

In December, two Shui On subsidiaries agreed to sell an office tower in its Corporate Avenue project in Shanghai for RMB 5.7 billion ($885 million), in a deal that came less than five months after the developer sold two office towers in the first phase of that project to Hong Kong’s Link REIT for RMB 6.6 billion.

In May 2015 Shui On Group subsidiary SOCAM sold the Four Seasons Hotel in Pudong to local Chinese developer BM Holdings for RMB2.3 billion ($371 million). During the same month, SOCAM sold off its stake in a cement joint venture for HK$2.55 billion ($329 million).