GIC Buys Out Vanke Stake in Shanghai Mall in Latest China Retail Bet

Singapore sovereign fund GIC has upped its bets on China retail, taking advantage of distress in the mainland market to take near-total ownership of a Shanghai mall in a deal that values the property at RMB 820 million ($115.6 million), not including debt.

GIC has raised its stake in a company holding Shanghai Songjiang InCity, a suburban shopping centre in southern Shanghai, from 50 percent to 98 percent, according to online corporate registry records updated on 4 September and seen by Mingtiandi. The trade reduces the equity held by the institution’s formerly equal partner in the project, China Vanke retail property unit SCPG, to 2 percent.

The fund’s investment in the 153,000 square metre (1.6 million square foot) mall is a rerun of a transaction between the partners two months ago, and it comes as Shenzhen-based Vanke continues to struggle for liquidity in China’s deteriorating property market.  In interim results released last week, Vanke reported its first half-year loss in two decades, suffering a RMB 9.85 billion shortfall, after achieving a RMB 9.87 billion profit in the same period a year earlier.

In response, company management is reassuring investors that it continues to pursue its previously stated goal of selling off non-core assets and focusing on its primary residential business. “At present, this plan is making positive progress,” Vanke said in a presentation released Monday. “Most non-core business investments are in the process of transaction negotiations.”

Sluggish Retail Market

At the valuation posted in company records, the additional 48 percent of Songjiang InCity taken over by Reco Yiyuan Private Ltd, a GIC subsidiary, is worth RMB 393.6 million, or the equivalent of RMB 5,360 per square metre of existing gross floor area. Assumption of any debt associated with the asset was not included in the corporate records.

Vanke and GIC broke ground on the second phase of the mall in March, with that expansion set to grow the property to 405,000 square metres of gross floor area, making it Shanghai’s largest single-structure commercial complex.

The expansion of the project includes plans for a 3,500 square metre ice rink, a 3,000 square metre playground and a 1,500 square metre indoor sports facility.

Vanke and GIC acquired the development site for Songjiang InCity in 2018 for RMB 702 million (then $111 million). The 46,800 square metre plot at the intersection of Yinze Road and Renmin North Road in the Guangfulin area was offered via public tender, with the Singaporean-Chinese venture being the sole bidder.

Songjiang InCity opened in November 2021 and sales exceeded RMB 1.8 billion by mid-2023, according to an announcement by the Shanghai government.

GIC’s investment in the Songjiang mall follows Mingtiandi’s report in July that the sovereign giant had upped its stake in another SCPG property, Shanghai Nanxiang InCity Mega Mall, from 50 percent to 98 percent, with the Vanke unit also retaining a 2 percent interest in that property.

The 48 percent stake in Nanxiang InCity Mega Mall, the city’s largest single-building shopping mall, traded for RMB 1.3 billion ($180 million), or RMB 8,040 ($1,135) per square metre, according to an interim results presentation released by Vanke this week. GIC’s stakes in both properties are held by the same subsidiary, Reco Yiyuan Private Ltd.

GIC and SCPG had also co-developed Shanghai Qibao Vanke Plaza, which opened in 2016, with the Singapore fund having sold its half-stake in that property to Hong Kong’s Link REIT in 2021. The HKEX-listed trust earlier this year bought out Vanke’s 50 percent stake in that mall at a 32.5 percent markdown from the asset’s appraised value.

GIC and other Singapore government entities have continued to seek opportunities in the mainland, despite slumping consumption and the flight of many Western and Japanese institutions from the market. The sovereign fund’s chief investment officer, Jeffrey Jaensubhakij, told the Financial Times in July that his team sees mainland asset sales as buying opportunities.

Retail sales in Shanghai fell 0.7 percent year-on-year in the first five months of 2024, consultancy Savills said in a research report. Only one new project within the Outer Ring Road was launched in the second quarter: Xuhui Vanke Plaza, which added 98,000 square metres of new supply at Shanghai South Railway Station.

“Footfall numbers continue to improve, but expenditure and retailers’ confidence is lagging,” said James Macdonald, head of China research at Savills.

Downgrade Follows Loss

Vanke’s latest disposal comes after the developer last week reported an attributable loss of RMB 9.9 billion ($1.4 billion) for the first six months of the year, reversing a year-earlier profit of roughly equal size. The company cited profitability declines on its residential projects, impairment provisions and markdowns on asset sales, as well as losses on financial investments.

On Friday, S&P Global Ratings lowered Vanke’s long-term issuer credit rating by two notches, from BB+ to BB-, as the agency forecast the builder’s contracted sales to fall 35 percent in 2024 and a further 18 percent in 2025.

“In our view, the weak sales performance is mainly due to still weak homebuyer sentiment in China, despite the relaxation of demand-side policies such as lowering down payment ratios and removing a mortgage-rate floor in May 2024,” S&P said.

The downgrade followed Vanke’s Thursday announcement that a syndicate led by Ping An Bank and Bank of Communications had loaned the developer RMB 11.5 billion to meet operational needs.