Mergers & Acquisitions

China Vanke joins the hunt for bad assets, sets up new ‘distress’ fund with ICBC

PUBLISHED : Tuesday, 19 December, 2017, 6:09pm
UPDATED : Tuesday, 19 December, 2017, 6:09pm

China Vanke, one of China’s largest residential property developers, is setting up a fund in collaboration with China’s largest bank ICBC to invest in distressed assets, reflecting a structural shift in asset trading away from new property developments.

Analysts said the fund represents a landmark change where pre-existing assets are now perceived to harbour more business opportunities.

“China’s property market, especially in first-tier cities, is gradually entering the ‘existing asset’ phase, in which developers will increasingly scout opportunities in businesses such as distressed asset disposal, urban renewal, and corporate buyouts,” said Qiu Haibin, president of Orient Ruichen, a unit of China Orient Asset Management Company, one of China’s top four bad asset managers.

“Vanke is diversifying away from its traditional property development business. And by setting up funds with other financial institutions, it can hone its capability in bad asset management, which is a highly professional niche market,” he said.

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Shenzhen-based Vanke said in a filing on Monday evening that it will invest 5 billion yuan (US$758 million) to set up a fund of funds, expected to be worth 10 billion yuan, together with two private equity funds under ICBC. The fund will target opportunities in restructuring, mergers and acquisitions and investment in distressed assets.

Vanke also said it will invest 955 million yuan in a 2.29 billion yuan fund with a similar mandate.

In May, Vanke established two funds with a total value of 12.9 billion yuan to invest in 42 commercial properties previously held by Vanke or its subsidiaries. In October, it invested 1.5 billion yuan into a 6 billion yuan fund targeting property related to the logistics sector.

These two funds, employed an asset management fund under Vanke as a general partner while inviting other financial institutions and Vanke’s parent company as limited partners. Vanke can reap asset appreciation as a limited partner, and earn commission fee income as a general partner. Vanke’s new fund of funds will use a similar structure.

In July Vanke teamed up with Hopu and Hillhouse Capital to acquire Global Logistics Properties for US$11.6 billion, the largest operator of warehouses in China, in Asia’s biggest-ever private equity acquisition by value.

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China Vanke is not alone among large Chinese developers to leverage their financial clout to explore opportunities among pre-existing distressed assets.

Poly Real Estate was also an early adopter, having launched funds with a total value of 60 billion yuan in sectors such as elderly care. Longfor Properties set up a 500 million yuan equity fund in October to invest in China’s health care, education and culture sectors.

Meanwhile, Joy City, a COFCO subsidiary, set up a 11.4 billion yuan fund in August with GIC and insurance giant China Life to invest in commercial property.