Soho drops plan to sell Hongkou property, snared by China’s capital control rules

Soho China Ltd, the biggest commercial developer in the Chinese capital, said it’s been forced to abandon its sale of a Shanghai property to a “famous” buyer, becoming the latest company to be snared by the country’s capital control regulations.

Soho had to drop the sale of Soho Hongkou, an office-and-commercial project with 95,000 square metres of usable space in Shanghai, according to the company’s founder and chairman Pan Shiyi.

He was forced to cancel the deal as his plan to use the proceeds to fund an overseas investment became unfeasible under the government’s tough outbound payment controls.

“I wrote a letter to the buyers to apologise, and got their understanding,” Pan said during a Thursday press conference, after announcing the company’s 2016 financial results. “Considering that getting hold of renminbi cash is less valuable than holding the property, we decided to withdraw the deal” from sale, he said, without naming the buyer or disclosing the sales value.

Soho Hongkou was part of an asset disposal plan announced in August last year, which also included Soho’s Lingkong project and Tianshan Plaza.

Last July, Soho sold its Soho Century Plaza in Shanghai to Guo Hua Life Insurance for 3.22 billion yuan (US$467 million), or 76,700 yuan per square metre, a 21 per cent premium to its book value.

Hongkou is the most recent in a series of abandoned acquisitions, takeovers and mergers caught by China’s latest policy, tightened to deter capital flight amid the Chinese currency’s 7 per cent deterioration last year against the US dollar.

Earlier this month, Wanda Group -- the owner of the AMC cinema chain in the US, controlled by property magnate Wang Jianlin -- backed out of his US$1 billion purchase of Dick Clark Productions, a Hollywood studio.

Soho China’s 2016 net profit for 2016 beat estimates, soaring 69 per cent to 910 million yuan while sales jumped 58 per cent to 1.58 billion yuan on the back of a 44 per cent increase in rental income.

The company was able to maintain a 96 per cent average occupancy rate in its properties, despite declining office occupancy in Beijing and Shanghai. The board has proposed a year-end dividend payout of 0.346 yuan per share, bringing the annual payout to 0.536 yuan per share.

By the end of 2016, the developer owns 8 commercial properties in Beijing and Shanghai, with two more under development. It has also opened 17 shared working space, namely Soho 3Q centers in Beijing and Shanghai, reaching occupancy rate of 85 per cent.

“Tenants of Soho 3Q come from various thriving industries, including IT, education, finance, consulting, media and culture. In contrast to the weak performance of traditional office leasing market, Soho 3Q inspired us with robust growth momentum,” Pan said in the results statement.

Shares of the company jumped 7.6 per cent Thursday to HK$4.56 in Hong Kong after the results were announced.

Additional reporting by Summer Zhen