Owner of Jinmao Tower to Spin Off Assets After Shelved Bond Sale

Commercial developer Franshion Properties joined the ranks of China’s most troubled real estate companies today by opting to spin off some its existing assets into a new listed company in an attempt to raise much needed cash.

The move by the Hong Kong-listed subsidiary of state-run chemical company Sinochem came only after a reportedly failed attempt to raise cash through a US dollar bond sale, as regional debt markets show signs of tiring of bonds from Chinese real estate firms.

Selling Off Prime Assets

An announcement from the company regarding the potential spin off indicated that the assets to be included in the new Hong Kong-listed company would include Shanghai’s Jin Mao Tower, The Westin Beijing Chaoyang, the JW Marriott Hotel Shenzhen, The Ritz-Carlton Sanya, Hilton Sanya Resort and Spa, and the Hyatt Regency Chongming, as well as two hotels still under development.

The announcement said that Franshion Properties would hold not less than a 51 percent interest in the spun-off entity. Proceeds from the spin-off would be used for refinancing the firm’s debt, working capital and for other general corporate purposes.

Buying Expensive Land May Not Be Smart

The share offering comes after Franshion’s stock price has slid about eight percent over the last six months, despite having raised $200 million in August, and another $300 million in October through bond sales aimed at shoring up its balance sheet.

Whatever credibility the company may have gained through the bond issues seems to have been squandered when chief executive Li Congrui decided to spend RMB 10 billion to acquire prime residential land in Shanghai this past January. Following the land acquisition the company’s stock slid as low as HK$2.22 per share before recovering lately to close today at HK$2.53.

A Costly Equity Sale

Now, Franshion seems to be moving quickly to raise cash as credit markets tighten in China and investors become anxious over highly geared real estate companies following last Friday’s bond default by Chaori Solar.

The Franshion spin-off has parallels to a failed attempt by Shui On Land last year to set up an IPO for its Xintiandi unit. Eventually, that Hong Kong developer had to sell shares in the newly formed subsidiary to private investor Brookfield.

According to a report in the South China Morning Post, Franshion might use the proceeds from its new listing to make further land purchases. Earlier this year, Li had said that the company planned to spend RMB 15 billion buying more land in prime locations in 2014.