Shui On Sells 49% of Shanghai KIC for $443M

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Shui On chairman Vincent Lo is going asset-light

Shui On has agreed to sell a 49 percent stake in its mixed-use Knowledge and Innovation Community (KIC) project in Shanghai for RMB 2.95 billion ($443.1 million), as chairman Vincent Lo continues to bail out the developer’s balance sheet.

Through the deal, the Shanghai-based builder made famous by its Xintiandi project is disposing of the stake in nearly 400,000 square metres of retail, office, hotel, car park and clubhouse properties within the mixed-use development. The stake sale is the latest in a series of project and share disposals by Shui On that have brought the Hong Kong-listed firm nearly RMB 42 billion over the last four years.

In a statement to the stock exchange, Shui On identified the buyer as “Wisdom Forever Limited Partnership, a limited partnership formed with the Purchaser LPs as the limited partners.” However, sources familiar with the transaction have informed Mingtiandi that the ultimate beneficiary of the shares is a unit of China Life, the mainland’s largest insurer.

Shui On Sells KIC Stake to Mystery Buyer

Through the transaction, which the company announced to the Hong Kong exchange last week, a Shui On subsidiary will dispose of stakes in two project companies that hold the KIC properties. The group owns interests of 99 percent and 86.8 percent, respectively, in the pair of project companies. Shui On developed the 48-hectare project in the city’s Yangpu district in phases and wrapped up major construction in late 2015.

The landmark KIC project was built in phases from 2003 to 2015

Upon closing, Shui On will retain a 51 percent stake in the properties, which it intends to keep over the long term, along the rights to manage the properties. This “ensures that the Group will benefit from the future growth of the project, expands the Knowledge and Innovation Community brand and earns recurring management fees after the Disposal,” the company said in the statement.

In it’s statement, Shui On describes the purchaser only as “a prestigious international financial institution and investor… whose shares are listed on multiple stock exchanges with businesses covering insurance, annuities, asset management, alternative investment and overseas business, and also with investments in banks, security firms and other non-financial institutions.”

Another Milestone for Pioneering Shanghai Project

Shui On partnered with state-owned Shanghai Yangpu University City Investment and Development in 2003 to build the large-scale urban redevelopment project, which was master-planned by Skidmore, Owings & Merrill.

The project’s KIC Plaza and KIC Corporate Avenue section, which serves as the office and R&D centre of the project, is home to top tech firms and corporate giants including IBM, Oracle, and China Telecom. KIC Plaza also includes InnoSpace, a pioneering tech startup incubator that opened in 2011.

The University Avenue and KIC Village zone, built around a restaurant and bar street, caters to startups and small businesses with four mid-rise buildings. Also part of the overall KIC project is the renovated Jiangwan Stadium, which Shui On operates as an event venue but does not own.

According to Shui On’s most recent annual report, the group held stakes of either 99 percent or 86.8 percent in a bundle of 11 completed office, retail, and hotel/serviced apartment properties comprising KIC as of year-end 2016. The properties total 249,000 square metres of gross floor area, or 398,000 square metres including clubhouse, car park, and other facilities.

The group was first reported to be seeking buyers for the project in August last year.

Shui On Continues Asset-Light Drive

Shui On describes the deal as part of a broader asset-light strategy it has been pursuing since 2015 to reap value from some of its mature investment properties and recycle capital into higher-return opportunities. The group is also looking “to leverage its commercial brands and asset management expertise in order to grow its portfolio and recurring income base,” according to the statement.

The group that is majority-owned by Lo and his family has become a serial seller of projects in recent years, disposing of more than RMB 39 billion in assets since 2013. The largest such deal was Shui On’s sale of Corporate Avenue in Shanghai to Hong Kong’s Link REIT for RMB 6.6 billion ($1.06 billion) in 2015.

The developer was reported in March to be in the process of offloading a 50 percent stake in another mixed-use Shanghai project, the Ruichong Xincheng development in Hongkou district, for RMB 8 billion ($1.16 billion). In May, Shui On disposed of a nearly 80 percent stake in its Chongqing Tiandi complex to China Vanke for RMB 4.1 billion ($598 million).

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