Struggling real estate developer Shui On Land ran into more trouble last week as it was forced to deny reports that it was preparing to spend RMB 3 billion, (US$482 million) to buy a commercial project on Shanghai’s Nanjing Road from Hong Kong investment firm Gaw Capital.
Hong Kong-listed Shui On, which has been working towards an IPO for the China Xintiandi subsidiary it formed last year, issued a statement to the stock exchange clarifying that no final agreement had been signed regarding the rumoured purchase of Ciros Plaza on West Nanjing Road by China Xintiandi.
The statement read in part,
The Company has been monitoring the market to identify suitable investment opportunities. However, the Company confirms that neither the Shui On Land Group nor the China Xintiandi Group has entered into any legally binding agreement in relation to the Possible Acquisition.”
Informed sources indicate that a non-binding memorandum has been signed between China Xintiandi and Gaw Capital regarding the deal. If the rumoured price is correct, the transaction would value the asset at RMB 37,300 (US$5,992) per square metre.
The 39-storey Ciros Plaza totals 90,000 square metres of GFA, including 50,000 square metres of office space. According to data from real estate information provider RightSite, office rents at Ciros Plaza in March averaged RMB 8.5/sqm/day.
Gaw Selling Assets Following Beijing Acquisition
Real estate private equity firm Gaw announced on April 8th that a company belonging to one of its funds had agreed to acquire Pacific Century Place in Beijing from Richard Li’s Pacific Century Premium Developments Ltd (PCPD) for US$928 million.
In a statement at the time Gaw described the acquisition as the biggest single-asset transaction invested by a foreign real estate private equity fund in China to date.
Shui On Continues to Move Toward Xintiandi IPO
While the company’s successful conversion of a century old shikumen development in downtown Shanghai into the upscale Xintiandi residential, retail and office district has helped it to build a brand, Shui On’s subsequent attempts to spread that brand into China’s hinterlands have built a mountain of debt. During last week the company’s stock slid from an opening price of HK$2.27 per share to close the week at HK$2.15.
Shui On put together its China Xintiandi subsidiary last year as a way to package some of its highest profile commercial assets for an IPO. However, when investor interest proved insufficient, the Shanghai-based developer later sold $750 million in equity to Canada’s Brookfield Property Partners L.P.
Then in early December Shui On sold its Chongqing Tiandi property for RMB 2.4 billion (US$393 million) and an uncompleted Shanghai office tower for RMB 3.32 billion ($545 million) in separate transactions.
In January of this year Shui On CEO Freddy Lee abruptly stepped down from his leadership of the company, leading to speculation that he had been dismissed by founder and chairman Vincent Lo.