CapitaLand Ltd. Monday said it plans to buy container shipper Orient Overseas International Ltd.'s China property business for US$2.2 billion, in a move that will significantly boost its prime real estate portfolio in two of China's biggest cities despite Beijing's efforts to cool the market.
The deal underscores the potential many investors see in China's property market, which has heated up in recent months as the nation resumed fast economic growth rates but raised concerns about the potential for bubbles in some places.
Through the deal, Singapore's largest property company by market capitalization will acquire seven sites in the greater Shanghai area and Tianjin. The sites comprise mixed-use projects under development with total gross floor area of 1.48 million square meters.
CapitaLand, which has been moving to expand aggressively in mainland China, said the acquisition will be funded from its existing cash, a large part of which was raised through the 2.8 billion Singapore dollar (US$2.01 billion) initial public offering of its Asian shopping mall business in December.
"The major assets are in the city center where there is currently very limited supply of such land in the market," CapitaLand Chief Executive Liew Mun Leong said.
The company sees China as one of its core markets and said it aims to eventually have China account for 35% to 45% of its assets, up from about 28% at the end of September. CapitaLand is building homes and owns offices and shopping malls in nearly 40 Chinese cities.
The deal comes as the Chinese government seeks to cool its property market after real-estate stimulus measures introduced late in 2008 spurred home buying.
The government said last week it will step up efforts to keep speculative money from abroad out of China's property market.
It also vowed to curb the rise in property prices by boosting the supply of affordable housing and to strengthen credit controls for second-home purchases.
On Monday, Mr. Liew welcomed China's measures to stabilize the housing market.
CapitaLand said it believes underlying demand in real-estate remains strong. "Urbanization is still happening...the high growth is still happening in China," said Jason Leow, chief executive of CapitaLand's China real-state operations.
For Orient Overseas, the sale of its China property unit will result in a gain of US$1.06 billion, allowing it to deploy capital to its core container shipping operations, the Hong Kong-listed company said Monday.
Its shipping business suffered from a sharp downturn in business since the fourth quarter of 2008 as global trade plummeted during the financial crisis.
The company, which is controlled by the family of former Hong Kong Chief Executive Tung Chee-hwa, reported its first first-half net loss in 10 years in 2009 because of plunging freight rates. Orient Overseas reported a net loss for the six months ended June 30 of US$231.8 million, compared with a net profit of US$158.3 million a year earlier.
The sale of the China business, when completed, will be Orient Overseas' biggest asset disposal since it sold four container terminals in North America for US$2.35 billion in 2007.
Orient Overseas said its stakes in a commercial development in Beijing and an office building in New York aren't part of the sale to CapitaLand.
For CapitaLand, the acquisition will have some impact on its board's decision to pay a special dividend to shareholders following the CapitaMalls Asia IPO, said Chief Financial Officer Olivier Lim. "We've been saying that the special dividend will be subject to other investment opportunities...I think certainly it will have some impact on the decision process," Mr. Lim said.
