Hong Kong firms scoop up properties from Chinese developers in distress

Henderson Land Development Co

26/11/2021 08:40

By Clare Jim
    HONG KONG, Nov 26 (Reuters) - After years of expansion in
Hong Kong, cash-strapped Chinese developers are reducing their
presence in one of the world's most expensive property markets,
allowing firms in the financial  hub to scoop up some of their
assets at distressed prices.
    Developers including China Evergrande Group  3333.HK  and
Kaisa Group Holdings Ltd  1638.HK , struggling under billions of
dollars in debt, have sold some assets in recent months to Hong
Kong developers to help ease liquidity stress back home.
    There's more to come - Aoyuan Group  3883.HK , which this
week extended the redemption date of onshore asset-backed
securities, is trying to offload more Hong Kong properties to
raise capital, two sources with knowledge of the matter said.
    Aoyuan is planning to sell a redeveloped office building in
Kwai Chung in eastern Hong Kong, and the bidders will likely be
local investors or family offices, said the sources, declining
to be named as the information is confidential.   
    The deal is expected to be sold at less than what Aoyuan
paid for it, the sources added. Aoyuan bought the building for
HK$950 million ($121.83 million) in 2018, and property agents
estimate its current valuation at less than HK$800 million.
    This will follow a deal in mid-November, when Aoyuan sold
some assets in a residential development in the Mid-Levels to a
Hong Kong investor at a loss of HK$177 million.  urn:newsml:reuters.com:*:nL4N2S50CR
    Aoyuan could not be reached for comment via its
officially-listed email and calls to the company went
unanswered.
    The trend will help Hong Kong property tycoons to further
boost their dominance in the Chinese-controlled territory.
    Once deep-pocketed Chinese developers had moved aggressively
into Hong Kong, outbidding their cross-border rivals for prime
sites in the city as they searched for investment opportunities
outside the mainland.
    But now those developers are facing an unprecedented cash
crunch due to regulatory curbs as Beijing tries to reduce
leverage in the sector, causing some to miss bond and wealth
management product payments.
    Some builders have resorted to selling their assets to meet
near-term repayment obligations.
   
    TREND REVERSAL
    "It's a reversal of the trend," said Reeves Yan, CBRE head
of capital markets in Hong Kong. "Chinese developers with
liquidity crunch are now selling, and it is expected that there
will be more selling in the next few months (in Hong Kong)."
    Kaisa, which missed coupon payments totalling $88.4 million
due earlier this month, sold a residential land parcel in Kai
Tak, where Hong Kong's old airport was situated, to local peers
Far East Consortium  0035.HK  and New World Development
 0017.HK  on Wednesday for a consideration of HK$7.9 billion, a
stock exchange filing said.
    It recently sold another parcel in Tuen Mun in northern Hong
Kong to local investor Francis Choi for HK$3.78 billion, Reuters
reported this week. The sale helped Kaisa recover around HK$1.3
billion cash after repaying the loans it borrowed for the land. 
   
    Kaisa declined to comment.
    Evergrande, which is grappling with more than $300 billion
in liabilities, has transferred unsold units worth HK$2 billion
in a residential development to its joint-venture partner VMS
Group, a Hong Kong financial company, a separate source told
Reuters.
    Evergrande did not respond to a request for comment.
    So far this year, taking into account only government land
sales and not private ones between developers, only one Chinese
property firm was involved in a land purchase worth HK$7.3
billion, which it jointly invested in with four Hong Kong peers.
    That compared with a total of HK$39 billion spent last year
and a record of HK$58 billion in 2017, according to data
compiled by CBRE.
    Some financially stronger Chinese developers are, however,
still active in the market, sector observers said. 
    In the city's last residential land auction in October,
state-owned China Overseas Land  0688.HK  was the only Chinese
company among the sixteen bidders, though it did not win.     
    "The state-owned developers are still cash-rich, but the
property market will be led more by Hong Kong investors going
forward," said Tom Ko, Cushman & Wakefield's Hong Kong capital
markets executive director.
     

 (Additional reporting by Julie Zhu; Editing by Jacqueline Wong)
 ((clare.jim@thomsonreuters.com; +852 2912 6653; Reuters
Messaging: clare.jim.thomsonreuters.com@reuters.net))