US private equity company Blackstone Group is reportedly aiming to take Chinese real estate development company Soho China Limited private. According to reports citing sources with knowledge of the matter, Soho is apparently in exclusive talks with Blackstone in a potential deal valued at around $4 billion.
The same sources revealed that Blackstone is willing to pay up to HK$6 per share of Soho China. The reported price the US private equity company is willing to pay is almost double Soho China's average market price of HK$3.03 in January.
Property analysts at CGS-CIMB Securities pointed out that the privatization of Soho China could be very positive for its shareholders given the 0.8 times of its price-to-book ratio. The company's assets are also expected to be valued higher once the company is taken private if the deal pushes through.
Soho China was originally founded in 1995 by a husband-and-wife team that built it up to become one of the country's largest developers of mixed-use properties. If the deal pushes through, it would mark the official exit of the company's chairman, Pan Shiyi, and CEO, Zhang Xin.
Following the rumors of the possible privatization, Soho China's shares in Hong Kong jumped by more than 37.6 percent to HK$4.10 before trading was halted.
Since last year, the company has been attempted to liquidate some of its assets to gain additional capital. This included offering eight of its office towers in Shanghai and Beijing to interested buyers for around $8 billion. In June of last year, the real estate developer placed around 20,000 square meters of space on the open market for around $1.12 billion.
The developer's chairman previously stated in an interview that the asset sale was necessary to reduce the company's losses given its falling property returns. Pan explained that returns on its property investments were only 3 percent, short of the bank loan cost it is paying of 4 percent. Apart from the asset sale, the company had revealed plans of moving away from rent-yielding projects and instead focus more on developing properties to sell.
The privatization of the company also comes at a very opportune time as Soho China continues to struggle with occupying its offices located in major cities around China. Vacancy rates of grade A offices in first and second-tier cities rose to about 12 percent at the end of 2019.
If the deal pushes through, it could become the largest take-private transaction in Asia, excluding debt. The transaction would be larger than the acquisition of GLP by a consortium of companies led by China Vanke and Hillhouse Capital in 2017.