“New leaders should burn three fires,” proclaims the Chinese idiom, advising clear and decisive action when taking on a new role.
In that context it should come as less of a surprise that just a few months after Ping An Insurance hired Lu Guiqing as the new chief executive for its real estate subsidiary the company announced the biggest property deal in China so far this year.
Last week China’s largest insurer by market capitalisation announced that it plans to acquire stakes of up to 70% in six Raffles City retail and office developments from Singapore’s CapitaLand for up to Rmb33 billion ($5.1 billion).
The price of the deal is more than the $3 billion paid by US private equity giant Blackstone for property developer SOHO China, which owns five office and retail properties in Beijing and four in Shanghai (see WiC545).
The Raffles City projects are located in China’s main cities including Beijing, Shanghai, Chengdu and Hangzhou. Post-transaction, CapitaLand will retain effective stakes ranging from 12.6% to 30% in each asset and will also continue to provide asset management services to the six properties. Canada Pension Plan Investment Board (CPPIB), which has invested in the projects during their development phase with CapitaLand, sold off its entire stake to Ping An, saying that it expects to generate net proceeds of $650 million from the sale.
Property analyst Yan Yuejin reckons that the Raffles City projects have performed well, although the pandemic has crimped some of their profits. “CapitaLand’s decision to sell part of its equity also shows that the company was facing certain pressures. But for Ping An, its holding as an institutional investor will have a positive role in helping to promote better operation and management of these projects,” he told the Beijing Times.
CapitaLand has also made it clear that selling the flagship assets doesn’t mean that the Singaporean firm is exiting the China market. In its presentation explaining the sale, the company said that the sale was a continuation of its pivot towards ‘new economy’ asset classes like logistics parks and data centres. In April the property giant purchased a four-building data centre in Shanghai’s Minhang district for $3.7 billion. Just last week, it also announced that it had sold two shopping malls in Japan as it develops a four-storey modern logistics facility in Osaka.
“Pan Shiyi’s logic of selling SOHO China is to move capital out of China. But the logic of CapitaLand’s sale of Raffles is different. It is not leaving China; it is merely changing positions. The sale reflects a quiet shift in CapitaLand’s business model: from traditional retail to logistics, business parks and data centres,” NetEase claimed.
Ji Yanxun, another real estate analyst, told the Beijing News that some property investors are moving away from more traditional choices like retail and office space. The Abu Dhabi Investment Authority (ADIA) also offloaded a group of five shopping malls in China for $1.4 billion recently. In February property giant Vanke sold its Shanghai Qibao Shopping Centre to Hong Kong’s Link REIT too.
Ping An seems happy enough to buy the retail space. “The acquisition has been a long time coming,” one insider told Sina Finance. “The two parties started communicating a year and a half ago. Ping An is launching new products in healthcare and senior care and CapitaLand’s assets in first-tier cities are the perfect offline platform for selling them.”
In addition to the CapitaLand deal, the insurance giant snapped up two projects in Beijing’s Lize business district recently, reportedly worth more than Rmb11 billion. Ping An has also invested in a commercial project in Hong Kong’s West Kowloon, alongside property developer Sun Hung Kai, and the insurer also owns stakes in mainland developers such as China Fortune Land Development, Country Garden and Greenland.
Other commentators have predicted more activity at Ping An’s property arm. “With the new chairman and chief executive Lu Guiqing taking over the property subsidiary, it is clear that there will be a lot of changes to the business from personnel to overall operations,” Sina Finance concludes.
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