Chongqing taps Hong Kong firms to buy distressed assets
Cheung Kong, Hutchison, Shui On approached to buy real estate: source
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Cheung Kong, Hutchison, Shui On approached to buy real estate: source
Reuters
03 May 2012
China’s biggest municipality, Chongqing, has approached Hong Kong investors with the aim of selling distressed property assets and bolstering its finances, which are under a cloud after the fall of its ambitious leader, Bo Xilai, a source said.
Bo’s removal as Chongqing’s Communist Party boss in March, amid police suspicions that his wife had murdered an expatriate British businessman last year, has triggered a party review of his leadership, including Chongqing’s financial affairs.
That - plus fears of a purge of Bo’s business allies - have created concerns over the debt accumulated by the vast municipality of some 30 million people in southwest China.
An estimate of Chongqing’s real public debt burden is elusive: the municipality’s latest available records, for 2010, show that 12 of its largest investment vehicles had racked up 363 billion yuan (S$71.5 billion) in debt.
The inclusion of liabilities taken on by state-owned firms and developers, along with district level financing vehicles across the municipality, mean Chongqing’s overall debt levels could be several times higher, according to analysts.
“They are very keen for fresh capital,” said a source familiar with the recent approach made by Chongqing officials to several Hong Kong conglomerates.
The officials discreetly reached out to billionaire Li Ka-shing’s Cheung Kong and Hutchison Whampoa as well as property developer Shui On Land to test their interest in buying distressed real estate projects, said the source who declined to be named.
The list of assets were not disclosed but included those seized from businessmen under Bo’s highly publicised campaign against organised crime in recent years, the source added.
Under Bo, the sprawling city on the Yangtze river became one of the world’s fastest-growing urban centres, a standard-bearer of his populist crackdown on crime and a vehicle for his ambition to join the top ranks of the central leadership.
But his so-called Chongqing model of state-led capitalism relied on debt to fuel expensive projects and social programmes, causing some foreign investors and executives to worry that Bo’s ouster will now cool investment in a city that attracted US$10 billion last year alone, up from US$1.2 billion in 2007.
“Some foreign firms are hesitating,” said the head of a private equity and investment firm in Chongqing who declined to be named given nagging concerns surrounding the Bo case. “They are particularly sensitive to political events so they’ll wait and see. A lot of people don’t dare do anything until late in the year.”
Hutchison declined to comment on whether it had been offered a list of distressed projects to consider, saying only that its existing projects in Chongqing were proceeding normally.
“All our property projects in Chongqing have been completed or being developed as planned,” spokesman Jeremy Lau said.
Shui On Land, which is embarking on a 37.5 million square feet development in the city, including three towers and an entertainment district, said it remained upbeat on Chongqing despite concerns of a housing glut.
Cheung Kong declined to comment.
However, Thomas Lam, head of research for greater China at property brokerage Knight Frank, said the Bo scandal would have a chilling effect in Chongqing.
“I believe Hong Kong developers may slow down their investment in the short term,” he said. “Some investors will adopt a wait and see approach.” Chongqing’s investment vehicles have been using government-granted land as collateral to raise loans, a technique used by local governments across China to finance new infrastructure.
Some foreign investors in Chongqing, as well as sources close to Ford Motor Co and Mazda Motor Corp, also say they have become concerned about a possible longer-term impact from the Bo crisis on the city’s investment climate.
The foreign investors, speaking on condition of anonymity, said some top Chongqing bureaucrats held similar fears after South Korea’s Samsung Electronics in March overlooked Chongqing as the site of a new flash-memory factory. Samsung chose Xian instead.
Like many cities in China, Chongqing’s government set up a slew of financing vehicles that embarked on major construction projects to build highways, bridges as well as one of China’s most ambitious initiatives to provide cheap public flats to some two million low-income residents in the coming years.
One major investment vehicle, Chongqing City Construction Investment Corporation (CCCIC), said its debt was sustainable and it remained open to borrowing fresh overseas capital.
“If Hong Kong investors are willing and we think their interest rates are reasonable, we will consider them,” said Sun Lida, chairman of CCCIC, which has raised billions of dollars for urban infrastructure including large-scale public housing estates on Chongqing’s periphery.
CCCIC now owes some 36.3 billion yuan in outstanding debts. - Reuters