Carnivorous real estate developer SOHO China announced on December 29th that it would buy a 50% stake in a commercial property project on Shanghai’s Bund, only to have rival developer Fosun announce its right to block the proposed deal on December 30th.
The Bund acquisition which would see SOHO taking over a stake owned by cash-strapped Greentown China Holdings Ltd along with Shanghai Zhendai Property Ltd and Shanghai Panshi Investment Management Co Ltd.  The remaining 50% of the project belongs to Fosun International Ltd.  According to the December 29th report in Bloomberg,
Soho China Ltd. will pay 4 billion yuan ($632 million) for a stake in a site on Shanghai’s historic Bund that’s partly owned by Greentown China Holdings Ltd., the builder seeking to improve cash flow from the sale of projects.
However, in a surprise development (at least it appears to have been a surprise to the principals at SOHO) , Fosun announced the next day that the terms of its agreements for the development give it right of first-refusal on any sales of shares in the project. From a Reuters report on the 30th,
In a filing to the Hong Kong stock exchange on Friday, Guo Guangchang, chairman of privately controlled Fosun, said the company was “surprised in relation to the proposed arrangements” as stated in SOHO’s statement released on Thursday.“The company … is of the view that it enjoys the pre-emptive right in the proposed transfer,” Guo said.“If such interest cannot be protected, the company shall take all appropriate legal actions to defend its interest,” he said, without elaborating.
If this sale is blocked or delayed, it could spell trouble for Greentown, among the most leveraged of China’s major real estate developers which is trying desperately to reduce its gearing ratio in the middle of a tight credit market. Also from the Reuters report,
Greentown said it would receive 1.04 billion yuan in proceeds from the sale, which would “improve the gearing level and strengthen the financial position of the group.”
Shares of Greentown have fallen about 60 percent in the past 12 months amid investor concern about the impact of a relentless government crackdown on property speculation and its ability to access funding.
Greentown has vowed to slash its net gearing ratio to below 100 percent in 2-3 years as it refrains from buying land to focus on property sales.
The firm had net gearing of 163 percent at the end of June, up from 132 percent at the end of 2010, making it the most highly geared Chinese property developer listed in Hong Kong.
It seems like things are getting interesting for China’s major real estate developers and we may finally see some consolidation of major players as companies fight for position in the current market.
[…] announced recently by SOHO, and subsequently denounced by Fosun, SOHO has allegedly agreed with Shanghai Zendai and cash-strapped Greentown China to acquire their combined 50 percent stake […]