Failure to close

Blackstone’s deal for SOHO China collapses


Pan and Zhang at the US Open

Anyone for tennis? At the women’s final of the US Open last weekend the cameras zoomed in on well-heeled spectators in the premium seats. Sitting alongside former player Andy Roddick and TV personality Gayle King, state broadcaster CCTV picked up on that fact that there were two prominent Chinese property tycoons in attendance at Flushing Meadows: Pan Shiyi and his wife Zhang Xin.

Their appearance at the tennis came a day after some disappointing news: Blackstone had dropped its $3.3 billion takeover offer for SOHO China, the couple’s property development firm. The deal, which was announced back in June, saw the private equity giant offer a premium of more than 30% on SOHO’s share price at the time. That sounded good but the offer was actually a substantial discount on a similar sale discussed in early 2020, prior to the worst of the pandemic. Commentators were soon drawing their own conclusions that the duo were eager to sell. “Is Pan Shiyi trying to flee?” one netizen even wrote.

The latest exit plan has backfired, however, with Blackstone explaining in a statement last week that it was dropping out after a “lack of sufficient progress” from government regulators needed to approve the takeover.

Even before the announcement, there were rumblings that the deal was running into political headwinds. In particular SOHO was trying to resolve preconditions that included antitrust approval from China’s State Administration for Market Regulation (SAMR), which the agency hadn’t granted.

The SOHO founders have run into flak for some time about a lack of loyalty to their home country. For instance in 2014 the high-profile couple made a $100 million gift to Ivy League schools, including Harvard and Yale University. Social media seethed with rebuke that they hadn’t donated to schools in China. The two were also called out for not being generous enough when Covid-19 saw Wuhan dramatically locked down last year and celebrities and tycoons went out of their way to donate (see WiC484 for more on this controversy).

“SOHO’s power couple Pan Shiyi and Zhang Xin, checked all the wrong boxes. They were political trouble even before this summer’s crackdowns on property and flashy billionaires, and Chinese netizens were already rallying against them for trying to sell out and flee,” Reuters commented grimly.

“Even if they try to run we will always catch them, we can’t let these capitalists take away Chinese people’s money,” one netizen thundered.

The vitriol comes at a time when China’s wealthiest businesspeople are trying to keep a lower profile. “Obviously, the deal wasn’t abandoned by the Blackstone Group but was blocked by a ‘socialist hand’,” was the verdict of a blogger called Central Luk Yu Tea House (his pseudonym derives from a place where Hong Kong bankers historically traded gossip). The blogger said the takeover also ran counter to new directives targeting ‘common prosperity’. He added: “During the era of rapid development of China’s property sector, Pan Shiyi not only became a capitalist in wealth but also a capitalist in spirit. He doesn’t bother to work with the commoners and he harbours even more disdain to have to give away his wealth in the name of ‘common prosperity’. Even though they made their fortune in China, they consider themselves American. Pan Shiyi has stayed in China for a long time not because he wants to but because he hasn’t sold all his assets here.”

After the deal fell apart, investors started to dump SOHO’s shares. On Monday, the company’s stock plunged almost 40% in Hong Kong. Investors could also have been spooked by broader developments in the sector, triggered by the growing risk of default from real estate giant Evergrande (100 worried investors stormed its HQ this week).

Central China Real Estate (CCRE) – a mid-sized developer listed in Hong Kong – is also making adverse headlines by begging for a state bailout. In a letter that was widely circulated in the media, CCRE, a major developer in Henan province, appealed to the local authorities, claiming that it risked defaulting on its US dollar debt.

The company blamed flooding in Henan earlier this year and the lingering impact of the pandemic for its dire predicament.

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