Hillhouse in talks to take developer SOHO China private - sources

SOHO China

13/11/2020 05:14

* Deal would mark Hillhouse's biggest bet on Chinese real
estate
    * Size over $2 bln based on avg premium for such HK deals in
2020 
    * HK-listed firms announced take-private deals worth $20 bln
in
2020
    * Average premiums for HK take-private deals rose to 42%
this year

    By Julie Zhu and Zhang Yan
    HONG KONG/BEIJING, Nov 13 (Reuters) - Private equity firm
Hillhouse Capital Group is in talks to take property developer
SOHO China Ltd  0410.HK  private, said four people with
knowledge of the matter, in a deal that could be worth more than
$2 billion and accentuate a trend in Hong Kong.
    Asia-focused Hillhouse has been in discussions with SOHO
China over the past few months, said the people. The
husband-wife team of Chairman Pan Shiyi and Chief Executive
Zhang Xin owns 64% of the mainland developer that is well-known
for its futuristic office buildings.
    A deal for taking SOHO China private could come after Hong
Kong-listed companies have announced take-private deals worth
$20 billion so far in 2020, more than double last year's annual
volume, according to Refinitiv data. Undervalued shares were
often cited as a reason for such deals.
    But with so much cash available with private equity and
other long term investors and a dearth of avenues to earn decent
returns, average premiums paid by buyers for those deals jumped
to 42% this year from 34% in 2018, as per Refinitiv.
    Shares of SOHO China, which has a market value of $1.5
billion, have slumped 24% this year, compared to an 8% fall of
the benchmark Hang Seng Index  .HIS .
    Hillhouse is also considering assuming about 18 billion yuan
($2.72 billion) of SOHO China loans as part of its leveraged
buyout, said one of the people. The developer had 33 billion
yuan in total debt as of end-June, according to its 2020 interim
report. 
    The SOHO China talks are at an early stage and subject to
change, said the sources who declined to be identified due to
confidentiality constraints. 
    Hillhouse declined to comment. SOHO China didn't immediately
respond to a request for comment.  
    
    SECOND SHOT
    The talks with Hillhouse will be a second shot at going
private this year for SOHO China. Blackstone Group  BX.N  walked
away from a $4 billion deal earlier in 2020 to take it private. 
   Blackstone declined to comment when contacted by Reuters on
Friday.  urn:newsml:reuters.com:*:nL4N2B31G3
    For Hillhouse, SOHO China would represent its biggest bet on
the Chinese real estate market, even in the face of a softening
office property market amid the COVID-19 pandemic.
    Founded by Chinese businessman Zhang Lei, Hillhouse is
raising what would be Asia's largest U.S. dollar-denominated
fund targeting $13 billion, and its largest-ever yuan fund of
over 20 billion yuan, Reuters has reported.  urn:newsml:reuters.com:*:nL4N2G8292
    The deal would be a landmark for Joe Gagnon, the former
Warburg Pincus veteran Hillhouse hired earlier this year to lead
its real estate investment team built from scratch.  urn:newsml:reuters.com:*:nL4N2FK1M8
    Founded in 1995 by Pan and Zhang, SOHO China went public in
Hong Kong in 2007. The developer has been scouting buyers for
its prime commercial property assets for the past two years as
the founders looked to shift their focus to overseas markets.
But talks have failed so far mainly on price, said two of the
people.  
    Buying the company is simpler than acquiring its properties
individually and would provide Hillhouse with more certainty in
completing a transaction, said one of the people.
($1 = 6.6216 Chinese yuan renminbi)

 (Reporting by Julie Zhu and Zhang Yan; Editing by Muralikumar
Anantharaman)
 ((julie.zhu1@thomsonreuters.com; +852 2843 6519; Reuters
Messaging: julie.zhu1.thomsonreuters.com@reuters.net))