Vanke Sells 48% Stake in Shanghai Mall to GIC, Expects Half-Year Loss of Up To $1.2B

China Vanke has sold a 48 percent stake in Shanghai’s largest single-building shopping mall to partner GIC, as the cash-strapped mainland developer continues to sell off assets to ease its RMB 322 billion ($44.5 billion) debt burden.

Online corporate registry records indicate that a vehicle of GIC now owns 98 percent of the operating company of the Shanghai Nanxiang InCity Mega Mall located in the city’s Jiading district, with a unit of Vanke retaining a 2 percent stake. Financial terms of the transaction, which took place last month, were undisclosed.

The disposal comes as Vanke on Tuesday estimated that it will record an attributable net loss of RMB 7 billion to RMB 9 billion ($963 million to $1.2 billion) for the first six months of the year, citing significant profitability declines on its residential projects, impairment provisions and markdowns on asset sales, as well as losses on financial investments.

“During the Reporting Period, the Company has formulated a ‘package of plans’ for business reformation and risks mitigation, insists on slimming down, reducing and resolving risks, and achieved positive progress, HKEX and Shenzhen-listed Vanke said in a filing. “The Company deeply apologises for the performance loss.”

GIC declined to comment on the transaction, while Vanke had not responded to Mingtiandi inquiries by the time of publication.

337,000 Square Metres

Developed by a 50:50 partnership between GIC and SCPG, the retail development and operation platform of Shenzhen-based Vanke, the mega mall opened in August 2020 after 30 months of construction, with the partners having invested over RMB 3 billion in the project. The property’s operating company had total assets of RMB 5.2 billion at year-end 2022 and book value of 2.6 billion as of June 2023, according to its latest financial disclosures.

The project was part of GIC’s strategy to invest in “dominant super-regional malls in top-tier major Chinese cities,” the Singaporean sovereign giant had said in an announcement marking the mall’s opening, adding that it was the only major mall to open in Shanghai that year.

Shanghai Nanxiang InCity Mega Mall is the second retail project between GIC and SCPG after Shanghai Qibao Vanke Plaza, which opened in 2016. HKEX-listed Link REIT acquired GIC’s half stake in that property in 2021 and bought out Vanke’s 50 percent stake earlier this year at a 32.5 percent markdown from the asset’s appraised value.

Located at the intersection of Chenxiang Road and Guyiyuan Road, about 23 kilometres (14 miles) northwest from the city’s Jing’an commercial district, the mall spans a gross floor area of 336,880 square metres (3.6 million square feet) across six floors and a basement level, of which the property’s leasable area measures over 100,000 square metres.

The property was 97.6 percent occupied as of year-end 2023, compared to 99.0 percent as of June 2023, and recorded revenue of RMB 193.2 million in the first half of last year, according to Vanke’s disclosures. The mall has over 400 shops and counts Zara, Uniqlo, Chow Tai Fook, Swarovski, and Lululemon among its tenants.

Citywide retail vacancy averaged 11.5 percent in the first quarter, marking a decrease of 1.5 percentage points from a year earlier, according to an April report by Savills.

“Shanghai’s retail market remains robust, characterised by stable vacancy rates and a dynamic mix of retailers and consumers,” James Macdonald, head of China research at Savills told Mingtiandi. “The sector continues to demonstrate resilience, attracting significant investments and new developments. However, the retail market is highly competitive, with a noticeable and increasing divide emerging between top-performing malls and others.”

Liquidity Crisis

Vanke’s expected loss in the first half of the year, which builds on a loss of RMB 362 million in the first quarter, marks a sharp reversal from the attributable net profit of RMB 12.2 billion logged by the company in 2023.

The developer attributed much of the losses to reduced profitability on residential projects settled this year, with a majority of those projects having been constructed on land acquired before 2022, when acquisition costs were higher. China’s plummeting housing prices coupled with heavy discounting by the company led to a “significant” reduction in gross profit, the company said in the filing.

Vanke, which is backed by the Shenzhen government through the city’s subway operator Shenzhen Metro Group, has set a target of reducing its interest-bearing debt by RMB 100 billion over the next two years as one of its strategic priorities, and plans to secure RMB 30 billion of liquidity this year through fresh loans and asset sales.

In addition to divesting its Shanghai mall holdings, Vanke is said to be in talks to sell its 21 percent stake in Singapore-incorporated industrial developer and fund manager GLP, and is planning to sell an unfinished commercial project in Shenzhen once designated as its new headquarters. The developer is also in talks with lenders for a RMB 50 billion syndicated loan, and has spun off shopping centre assets into a Shenzhen-listed REIT, which began trading in late April.

“Developers in China are actively exploring strategic divestments to ensure adequate liquidity and manage debt levels effectively,” said Macdonald. “This trend is part of a broader strategy to navigate current market conditions and maintain financial stability. Such divestments are indicative of the adaptive measures being taken to address operational challenges and optimise asset portfolios.”

Vanke notched RMB 127 billion of contracted sales in the first six months of this year, ranking third in the country behind Poly Developments and China Overseas Land & Investment, according to data from CRIC.

In May, ratings agency Fitch downgraded Vanke’s long-term foreign and local currency issuer default ratings from BB+ to BB-, two months after Moody’s withdrew its issuer rating for the developer and issued a corporate family rating of Ba1 for Vanke, placing the group chaired by Yu Liang one level below investment grade, and lowered Vanke’s senior unsecured bond ratings by one notch to Ba2.