HK group seeks failed China projects

HK group seeks failed China projects
Tom Mitchell, Robin Kwong, Hong Kong
April 14, 2007

HONG Kong's most prominent developer of property in China is to head an international consortium to invest in distressed real estate left in the rubble of China's construction boom.
Vincent Lo, chairman of Hong Kong-listed Shui On Construction and Materials, is teaming up with Spinnaker Capital, JP Morgan and others to form the company. China Central Properties will seek an overseas listing. Led by Socam, the partners will inject five properties valued at about $US250 million ($301 million) as well as $US200 million in cash.
According to Mr Lo, possible listing destinations include London's Aim, Euronext, Hong Kong's GEM and Singapore. Deutsche Bank is acting as sole global co-ordinator for China Central Properties. China's cities are littered with the concrete skeletons of office and residential properties abandoned during construction. According to CB Richard Ellis, the country's stock of unsold property reached 320 million square metres at the end of last year compared with 65 million square metres in 2000.

Such assets can be completed a year or two after new capital is injected. Mr Lo and partners are betting that China Central Properties can realise quick returns and avoid the headaches of traditional property investment, such as relocating and compensating residents.

"We will be entering the development at a late stage, so the risk is much lower," Mr Lo said at a briefing in Hong Kong. "It is not like developing a new site where you have to wait for design and the construction. This is much faster."

But investing in distressed assets - lan wei lou or "rotten tail buildings" - can involve legal risk. They are often the subject of Byzantine court spats involving bankrupt state companies and jilted Chinese banks.

Socam and partners have already invested in five lan wei lou in Beijing, Chengdu, Dalian and Qingdao.

The shares of Mr Lo's other Hong Kong-listed company, Shui On Land, have risen 20 per cent since last October when it raised $US880 million in a listing.