Hong Kong private equity firm GAW Capital in talks to fund Chinese buyer’s HK$15 billion tower deal
- Negotiations between GAW Capital and Chen Changwei to fund acquisition of Cityplaza Three and Cityplaza Four ‘going well’
- Swire Properties, the vendor, needs to approve debt structure
Hong Kong private equity fund GAW Capital Partners is in talks to fund a HK$15 billion (US$1.91 billion) buyout of two commercial towers in the city, after Beijing’s tightened capital controls forced their original mainland Chinese buyer to look for financing elsewhere.
GAW Capital is in talks with Chen Changwei to fund the acquisition of Cityplaza Three and Cityplaza Four in Taikoo Shing on eastern Hong Kong Island. Under a proposed arrangement, GAW Capital will have the right to convert its loan into less than 50 per cent ownership equity in the office towers. The deal also allows it the right to raise its stake and become the largest owner of the towers, according to two sources familiar with the matter.
“The negotiations between GAW Capital and Chen are going well. But they still need the vendor’s approval for the debt structure,” said a source.
In June, Henglilong Investments, a privately held affiliate of Chen’s Hengli Group, entered into a sale and purchase agreement with Swire Properties for the latter’s interest in Cityplaza Three and Cityplaza Four for HK$15 billion in cash, in one of the biggest property deals this year.
A spokesperson for Swire Properties declined to comment on the matter on Tuesday.
The towers are grade A office buildings with a gross floor area of 226,060 sq ft and 543,576 sq ft, respectively. The transaction is expected to be completed on April 11, 2019.
The sources said tightened capital controls have affected Chinese buyers’ financing plans and forced them to look for help.
Denis Ma, head of research at JLL Hong Kong, agrees. “We have seen a slowdown in transaction activity from the mainland, as the Chinese government cracks down on capital remittances. The tightened capital controls have had an impact on the city’s property market,” he said.
The volume of commercial property transactions in Hong Kong, including deals worth more than US$10 million, fell by 65 per cent in the third quarter this year to HK$19.4 billion, the lowest quarterly average of 17 en bloc transactions recorded over the past two years, according to international property consultant CBRE. The consultant said the ongoing US-China trade war and interest rate increases had dampened investor sentiment.
Moreover, local investors led the buying activity, with domestic capital accounting for 78 per cent of the commercial property investment volume. Chinese investors contributed with just 15 per cent, CBRE said in a quarterly research report released last week.
Swire said in June the proceeds from the disposal of its interest in Cityplaza Three and Cityplaza Four would be used as general working capital, and would put the company in a stronger position to continue with its investment programme and to pursue new ventures in core markets.
In an interview with the South China Morning Post in September, Swire Properties chief executive Guy Bradley said it was the right time to sell old buildings on the fringes of Taikoo Place, and “to invest the funds in building new assets, such as new offices in Taikoo Shing and in Pacific Place”.
GAW Capital had US$17 billion in assets under management as of the first quarter this year.