China Overseas Land sells stake in Kai Tak land plot for HK$1.35bn amid gloomy mainland market outlook

China Overseas Land sells stake in Kai Tak land plot for HK$1.35bn amid gloomy mainland market outlook

Leading Chinese developer China Overseas Land & Investment (COLI) has sold part of its stake in a plot in Kai Tak, site of the city’s old airport, as the mainland real estate market remains under pressure and subject to cooling measures.

COLI said Coli Finance, its wholly controlled subsidiary, sold a 30 per cent stake of residential land in Kai Tak for HK$1.35 billion (US$173 million) to Haijian Fund, according to a filing to the Hong Kong stock exchange late on Friday.

Haijian Fund is 50 per cent owned by a subsidiary of China Construction Bank, one of the major four state-owned banks, and 50 per cent owned by China State Construction Engineering Corporation, a state-owned construction company, and China Overseas Holding (COHL).

COHL is the parent company of COLI with a 56.09 per cent stake.

COLI said that the deal “will enable the company to utilise its resources to diversify its investment options and ensure the healthy and sustainable development of the company in the long run … and the net proceeds will be used as general working capital of the company.”

The stake-backed home builder’s move follows in the wake of a series of deals by cash-strapped Chinese developers to sell down shares in their assets in Hong Kong as a way to collect quick money and repay creditors.

Kaisa Group Holdings sold its stake in a development at the old Kai Tak airport site – considered a piece of prime real estate – to a venture backed by New World Development and Far East Consortium International for HK$1.9 billion in cash – with the assumption of about HK$6 billion in loans on Thursday.

Meanwhile China Evergrande, currently the world’s most-indebted property developer, has been trying to find a buyer for its official tower in Wan Chai.

Even those Chinese developers not in the grip of a debt crisis, like COLI, are pulling out all the stops to cut costs as the industry faces a gloomy outlook.

China Vanke, the country’s third-biggest home seller by sales, told its staff to “live frugally, spend small money and do big things” at a meeting on Tuesday, according to an internal document seen by the South China Morning Post.

Beijing’s cooling measures, known as the “three red lines”, have made it more difficult for overleveraged developers to obtain bank loans, cutting off an important source of liquidity.

“This downturn is unlike previous corrections as it has already contributed to a number of developer defaults,” said S&P Global Ratings credit analyst Matthew Chow.

“Government tightening measures are driving the downturn. Some developers’ inadequate liquidity management and their reliance on hidden debt have compounded market strains, but investors will likely be focused on when easing may happen.”

COLI paid HK$4.27 billion for the Area 4E Site 1 in Kai Tak in a Hong Kong government land tender in 2020. The price for the site, which can yield up to 328,453 sq ft in gross floor area, works out at about HK$13,009 per sq ft.

Upon completion of the deal, the Chinese developer will still hold a 50 per cent stake in the land parcel.

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