Property

Dai’s rand plan

Tycoon reveals multi-billion African project

CHINA DAI ZHIKANG

Megaplans for Moderfontein: Dai

In 2010 Shanghai Zendai grabbed headlines when it paid Rmb9.2 billion ($1.51 billion) for a patch of empty riverfront just south of the Bund, Shanghai’s historic strip of colonial-era buildings. At the time the Shanghai Morning Post dubbed the developer as the city’s new “Land King”, putting a picture of its chairman Dai Zhikang on its front page.

In 2011, Zendai was back in the news for a different reason. It had just announced a reshuffle of the ownership of the Bund site, selling out to the conglomerate Fosun and another developer called Greentown.

Reports emerged that Zendai was knee-deep in debt – Moody’s cautioned that almost half of the Rmb2 billion it had borrowed was from the grey market.

But Hong Kong-listed Zendai is giving few indications of feeling cash constrained now. In fact, it’s just announced a massive new development in South Africa. Dai says that Zendai will spend as much as $7.8 billion over the next 15 years to transform Johannesburg into the “New York of Africa”.

The project is located in the Modderfontein neighbourhood of South Africa’s commercial capital, where Zendai plans to transform the 1,600 hectares of land into a financial hub with 35,000 houses, an educational centre and a sport stadium.

“It will become the future capital of the whole of Africa,” Dai promised ambitiously at a press conference. “This will be on par with cities like New York in America or Hong Kong in the Far East.”

Not everyone shares his enthusiasm. For a start, many question how Zendai plans to finance the project, which is forecast to cost about 27 times the company’s market capitalisation of $288 million (its value on Wednesday). Even if Zendai can build it in phases, pre-selling each one, finding nearly $8 billion in financing is going to be a stretch. The Oriental Morning Post called the plan “a snake trying to swallow an elephant”.

In the first half of 2013 Zendai revenues rose sharply to $138 million, an increase of 133% over the same period last year. But the company is still highly leveraged. As of the end of June, its gearing ratio was 96%, higher than it was at the end of 2012. Bank loans and borrowings from trust companies have also reached $726 million, of which $204 million is payable within a year.

That means that some South Africans aren’t sure what to make of the Chinese developer either. Alec Hogg, author of BizNews, a South African business news site, told CBN that the deal sounds too good to be true. It’s like “a pie that has dropped from the sky,” Hogg warned.

On Business Day TV, a local television channel, a news anchor also asked whether the project sounds “creepy”.

But Ernie Lai King, a lawyer hired by Zendai in South Africa, sought to quell such concerns. Speaking on local television, he claimed Dai was “a visionary,” assuring viewers that the tycoon has been “very successful” in his home country.

Zendai insists that it conducted extensive research on South Africa before deciding to make such a large investment. Wang Fujie, a company spokesman, says Dai visited several times: “Not as a tourist but to observe local real estate, mining and agriculture.”

So why choose South Africa? “More powerful people like Li Ka-shing go to the UK and Europe. Those of similar financial strength like Wang Jianlin (of Dalian Wanda) choose California and the US. So we are left with Africa,” Dai wrote on his personal weibo.

In another microblog post, he added: “Those without power or money should go to Africa. That’s because only in Africa can you catch up on those who have [money and power].”

Trade ties between South Africa and China are growing. In addition to natural resources, China is a big importer of textiles and related raw materials. Last year, imports from South Africa reached $200 million, a yearly increase of 46.5%, says China’s Ministry of Commerce. But Zendai says that once the Johannesburg development is complete, it will become an important hub for Chinese firms investing in sub-Saharan Africa.


© ChinTell Ltd. All rights reserved.

Exclusively sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.