Chinese Estates builds reserves with sale of stake in Jiangsu joint venture

Developer is selling off non-core assets to raise cash, as revenues are expected to be hit as a result of corruption case in Macau

PUBLISHED : Friday, 07 September, 2012, 12:00am
UPDATED : Friday, 07 September, 2012, 3:03am

Chinese Estates Holdings - the Hong Kong-listed property developer at the centre of a corruption case in Macau - has sold its interest in a joint-venture project in Jiangsu province for US$500 million to increase its cash reserves.

The company paid the same price to buy into the venture in June last year. In a statement to the stock exchange yesterday, Chinese Estates said it expected to book a loss of about HK$10.5 million on the transaction when it is completed.

The developer sold its 49 per cent interest in the venture to an investment fund managed by the Sparx Group. Under the sale and purchase agreement, the investment fund must pay cash of US$200 million and issue a loan note for US$300 million to Chinese Estates.

The Jiangsu project is in the southeastern outskirts of the Yin Xing Ken district in Qidong city and has a site area of 1.34 million square metres. The site could be developed into a residential, business and resort project with a total gross floor area of 1.58 million sq metres.

The construction of the first phase of the project has started, and it was launched for sale in July.

Alan Chiang Sheung-lai, head of residential property on the mainland at consultancy DTZ, said developers' expectations about property price growth had changed from a year ago.

"Previously, developers expected property prices would grow 7 to 8 per cent a year. Now, they expect they will climb only 2 to 3 per cent a year, owing to the government's housing policies," Chiang said.

"So it's already a good deal for Chinese Estates if it manages to sell its stake for the original price."

Chinese Estates has been active in selling non-core assets over the last few months. Analysts said it was attempting to improve cash flow as its revenue from property development is expected to be hit by the Macau corruption case in which it has become embroiled.

In June this year, the Macau government declared the sale of five plots of land to Chinese Estates invalid as part of its HK$20 million corruption case against now jailed former Macau public works chief Ao Man-long, Chinese Estates chairman Joseph Lau Luen-hung and Hong Kong tycoon Steven Lo Kit-sing.

On Wednesday, the government also ruled that the land exchange and lease modification of a further eight sites that Chinese Estates had consolidated with the five sites to build its La Scala residential project was invalid.

The developer has so far invested about HK$2.8 billion in the development and has indicated it will appeal the Macau government's ruling.

Lau is due to go on trial in Macau on September 17 on charges of bribery and money laundering.