Blackstone scraps 1.1b yuan Shanghai property deal as markets worsen

PUBLISHED : Monday, 13 October, 2008, 12:00am
UPDATED : Monday, 13 October, 2008, 12:00am

A 1.1 billion yuan (HK$1.25 billion) Shanghai property deal has been scrapped by United States private equity fund Blackstone Group, while a second remains under a cloud because of worsening conditions in global credit markets and arguments over pricing, according to sources.

In a deal reached four months ago, Blackstone agreed to acquire a 90 per cent stake in Changshou Commercial Plaza in Shanghai from Hong Kong-listed VXL Capital.

However, the first deal remained uncompleted and has now been scrapped.

'It's gone, both as a result of the fundamentals of the market and a valuation question,' a source said.

The Changshou Commercial Plaza comprises a north block with a six-level shopping centre and commercial complex measuring 26,312 square metres currently undergoing renovation, and a south block of 14,033 sq metres.

The 1.1 billion yuan offered for the 90 per cent stake was nearly double the 586 million yuan VXL Capital paid for the property in March 2006.

At the time of the agreement, Blackstone said it hoped to use the deal as a stepping stone into further acquisitions in the mainland property market.

However, this aggressive strategy has been derailed by worsening conditions in global financial markets, the uncertain economic outlook worldwide and the continued retreat of property prices on the mainland.

'Blackstone was looking at a lot of investments in the mainland, not just in Shanghai, but now it has decided not to move forward,' the source said.

'And it's not just property either. Everyone's down on just about everything at this point.'

In August, it was widely reported by mainland media that Blackstone had agreed to buy a new shopping centre in Shanghai - Skymall - for more than 4.5 billion yuan from mainland developer Super Ocean Group.

It was reported to be the second property investment by Blackstone on the mainland following the discontinued Changshou purchase.

But a source close to the second deal said on Friday that after extended negotiations and due diligence, this deal also remained uncompleted and the parties had failed to reach a compromise on pricing.

According to international property consultant Jones Lang LaSalle's third-quarter property review, only three major property deals in Shanghai that involved foreign capital were recorded during the period.

'Conditions in credit markets across the globe have also slowed the pace of activity, with liquidity proving to be more of a problem than ever,' the report said.

Funds based in North America and Europe are now revisiting investment propositions in their home markets, where price corrections have created attractive opportunities at lower risk, Jones Lang LaSalle said.

However, to date this had not come at the expense of existing plans for China, which offered investors an opportunity to diversify their asset portfolios.

Valuation problem

Blackstone's stalled Skymall acquisition deal is worth more than, in yuan: yuan 4.5b