Property

Goldin opportunity

Tianjin’s tallest building has become a money pit for Pan Sutong

Pan-Sutong-w

The tycoon from Tianjin: Pan remains an active horse racing fan

Some people call him crazy. Others say he is simply removed from reality. For Pan Sutong, the jury is still out on whether there is a method to the madness.

As the head of Goldin Group, the Chinese billionaire controls a conglomerate that spans real estate, finance, horse-breeding, French vineyards and German smartphones (see WiC298).

The wine and horse aficionado’s social life is equally diverse. He is friends with the owners of France’s five First Growth Bordeaux producers and has rubbed shoulders with Princes William and Harry, who used to play at a charity polo match Pan sponsored at England’s exclusive Beaufort Polo Club.

In early 2008 Pan also found himself on the back pages of Hong Kong tabloids, after he appeared to kiss Hong Kong starlet Gillian Chung rather forcibly at a Shenzhen promotional event. (“I wanted to hit his [Pan] head with the microphone,” Chung told reporters later.)

The combined market value of Goldin Property and Goldin Finance approached HK$300 billion ($39 billion) in May 2015. But one month later Pan saw as much as Rmb80 billion ($12.7 billion) of his personal fortune wiped out as the share price of his Hong Kong-listed firms crashed. At the time, the tycoon dismissed such stock market volatility as “meaningless”.

Despite the glitzy veneer, cracks have started to show in his empire. Early this month, Pan was in the news for looking for a buyer for his 117-storey skyscraper in Tianjin. There were rumours that Sunac, a serial white knight to financially troubled firms including LeEco, Kaisa and Greentown, was going to take over the half-completed project. Both companies have since shot down the speculation.

The Goldin Finance 117 skyscraper, according to plans, is to be topped out with a diamond-shaped atrium and will also house a five-star hotel. Construction began in 2008. Had it been finished on schedule in 2015, it would rank as the fifth tallest in the world and a landmark in the new Beijing-Tianjin-Hebei metropolitan area (or Jing-Jin-Ji, see WiC294).

As of today, the project remains unfinished.

At what point did Pan’s dream start to derail? Well, let’s start with Goldin Metropolitan, his flagship residential project in Tianjin.

At Goldin Metropolitan, you will find French- and Italian-style mansions, apartments and townhouses, each with their own tennis court. There is even a polo club – China’s largest – a wine museum and a central business district anchored by a different skyscraper. The entire project takes up 450 acres.

“I’m not satisfied with three Michelin stars or Robert Parker’s 100 points,” Pan told Bloomberg at the time, referring to the famous US wine critic. “We want to put everything that is high-end into one community, where horses are front and centre.”

The problem, however, was that not enough people could afford to buy. The project was going for Rmb40,000 per square foot when other nearby high-end developments were fetching around Rmb20,000.

“Apart from a few local farmers and white-collar workers”, there were very few people that live in the area. And these people were obviously not the target consumers for Goldin,” reckoned Huxiu, a portal.

Goldin Finance 117 struggled with the same problem. It is located in an industrial wasteland filled with dilapidated buildings and abandoned factories. There are few selling points worth mentioning apart from being next to two universities.

Meanwhile, Goldin Property continued to bleed cash because it was not allowed to pre-sell the residential project before it was completed (as required by law, selling cannot begin until the project has been cleared by the authorities – typically they only give permission to pre-sell to more established developers).

The developer was forced to put up all the money on its own to finance the project. As Sina puts it, “for several years, Goldin Property has had to operate without a single dime coming in”.

The Tianjin firm had raised funds via a rights issue and convertible bonds. What’s worth noting, though, is that Pan, who owned around 64% of the company, contributed the majority of the financing.

For instance, in 2007, to acquire the land where Goldin Metropolitan now sits, the company raised HK$3.2 billion in Hong Kong through a rights issue as well as a convertible bond, of which Pan subscribed for over HK$2.3 billion. Similarly, three years later, when the developer issued another HK$4.9 billion of convertible notes, the tycoon purchased the majority (though half of the proceeds were used to offset shareholder loans).

“Based on the above transactions, virtually all the capital transfusion has come from its chairman. But as to where Pan’s money came from, that has always been a mystery,” commented Sina.

Still, the developer’s asset-to-liability ratio worsened from 4.2 times in 2009 to 1.3 times in 2015. At one point, Goldin’s cash on hand dwindled to only HK$1.5 million in March 2015, said Sina. Pan ended up taking the company private last year; a decision, he explained, to avoid dealing with minority shareholders.

At the moment, it is uncertain who will take over Goldin Finance 117. In fact, many suspect that the project no longer belongs to Goldin. Back in 2016, just after the company was taken private, Pan formed a joint venture with China Cinda, one of the largest bad-debt managers. The arrangement, according to Si-na, was that the joint venture would hold some of Goldin’s assets including the incomplete skyscraper.

“According to the plan, the 117 building may no longer be in the hands of Tianjin Goldin but is jointly held by Pan Sutong and China Cinda. Indeed, after rumours of the sale of the building were circulating, Goldin denied that it was negotiating with any of the relevant parties,” reported the portal.

The half-complete high-rise offers a cautionary tale for other ambitious tycoons.

“Skyscrapers in many ways represent the dream of mankind in the pursuit of lofty goals. It is a trend that will never go away. Even though there are many skyscrapers in China today, there will be more in the future,” Zhixin Weilai, a financial analyst, wrote on his popular blog. “But dreams are dreams. We still have to deal with the reality of the problems that came about with the construction of the skyscraper. In fact, there is no real economic need to build such a tall building in the middle of nowhere. Now the building stands to tell the story of a man chasing his dream.”

That suggests the next chapter in Pan’s epic business odyssey could be a dramatic one…


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