SIUD partnerships with Hong Kong firms gives it competitive edge
Q&AWith more than 30 years experience in property, recently appointed SIUD chairman Ji Gang plans to continue the group's strategy of cooperation with global partners to improve competitiveness
Shanghai Industrial Urban Development Group (SIUD) is not a household name in Hong Kong but its partners are.
The company, a subsidiary of Shanghai Industrial Holdings, came under the spotlight after it brought in Nan Fung Development and Sun Hung Kai Properties as strategic investors in two high-profile deals.
Back in 2010, state-owned conglomerate Shanghai Industrial Holdings (SIH) took over beleaguered developer Neo-China Land Group as the controlling shareholder and changed the name to Shanghai Industrial Urban Development Group.
Since then, SIUD has stepped up its acquisitions.
Three months after the back-door listing, it bought a large plot at Xinzhuang subway station. The site is earmarked for a 10 billion yuan (HK$12.5 billion) integrated development, Todtown, through a partnership with SHKP.
Last year, it formed a coalition with Nan Fung to buy the Shanghaimart in a 51:49 joint venture for US$579 million.
Last year, the company declared its first dividend of 1.1 HK cents since its takeover of Neo-China Land.
Ji Gang took up the firm's chairmanship in February. He has more than 30 years experience in the real estate industry.
Graduating from Fudan University with a master's degree in economics, he was the vice-chairman and president of Shanghai-listed Shanghai Industrial Development, a subsidiary of SIH which is listed in Hong Kong.
Before joining SIH, he worked for the Shanghai municipal government as an officer of the Commercial Committee and Economic Committee of Zhabei district.
China is pushing ahead with its reform of state-owned enterprises in order to boost the competitiveness of inefficient industries. How will the company go through the transformation?
SIUD is 71 per cent owned by SIH and the remaining 29 per cent is in the public float. SIH then injected a 59 per cent interest in Shanghai Urban Development, in which 41 per cent is held by Xuhui State Assets Supervision and Administration Commission, into SIUD. It shows that we have full support from parent SIH.
Some state-owned enterprises in Shanghai have accelerated the pace of reform. SIH is actively involved in the state-owned enterprise reform campaign.
It is exploring possible consolidation with other subsidiaries to enhance the profitability of the group. But we have no concrete details at the moment.
Will the company continue seeking cooperation with Nan Fung and SHKP in the future?
Definitely. We have land and strength in liaising with the municipal government. It will be a perfect match with SHKP as it offers a high standard of property management and experience in building projects along railway lines that we do not have.
And so is Nan Fung, which has strong cash reserves and is looking for investment opportunities in Shanghai.
We will also be interested in working with other international players too. The cooperation could go beyond property such as e-commerce or cultural-related business as well.
What is the firm's investment strategy?
The firm will focus in the Yangtze River Delta. Currently, we have three major developments in Shanghai that are either under planning stage or construction. They will be completed over the next six years.
They are two office projects - Binjiang U Centre and U Centre - and the integrated project at Xinzhuang subway.
The three projects will comprises a total of 1.03 million square metres of gross floor area.
SIUD will also plan to increase investment properties in order to secure a stable recurrent income in the future.
Why does the firm intend to increase rental income?
We have seen developers like SHKP, New World Development, CK Hutchison Holdings also hold a substantial investment property portfolio. A certain portion of their income stems from rental income.
Does the firm have a plan for the ageing Shanghaimart?
The Shanghaimart, which has a gross floor area of 280,000 square metres, was the first trade exhibition venue after China's open door policy. The acquisition worked out to 18,000 yuan per square metre.
It is a 20-year-old building and will need a makeover to sharpen its competitiveness. China opened in October the 1.2 million square metre National Exhibition and Conference Centre (Shanghai), the world's largest venue of its type.
We are constantly exchanging ideas with Nan Fung chief executive Anthony Leung Kam-chung to see if we can add value to the building such as injecting the concept of cultural and creative industry.
It provides an annual rental income of HK$400 million.
What is your view on the property market outlook?
I am very optimistic about the prospects of the property market although our sales target of 4.5 billion yuan is slightly lower than 4.7 billion yuan last year.
But our profit margins should improve as less government subsidised housing is put on sale this year.
The government only offers 3 to 5 per cent profit margin for subsidised housing which targets low income groups. The firm's profit margin was 38 per cent last year.
We aim to maintain this level because of lower land cost and increasing commodity housing up for sale this year.
Is the firm affected by rising borrowing costs among mainland developers as a result of Kaisa's offshore bond default?
Our borrowing cost is 5.9 per cent, which is lower than the 7.8 per cent to 9 per cent among peers in general.