China's Hony Capital keen to explore Reits listings on SGX

Singapore

HONY CAPITAL, a major Chinese private equity firm that counts Temasek and GIC among its investors, is keen to explore ways to work with the Singapore Exchange (SGX) in securitisation products.

Chief executive John Zhao told BT on the sidelines of the FutureChina Global Forum on Monday that he plans to kick-start talks with SGX, noting that there are many Chinese companies with real estate assets such as hospitals, offices and hotels that are ready for securitisation.

"We hope to discuss with SGX mainly in the area of securitisation and we hope that SGX will build on its strengths in the Reit sector," said Mr Zhao, who is also executive vice-president of Legend Holdings, the sponsor of Hony Capital.

Singapore is the largest Reit hub in Asia-Pacific ex-Japan, with 28 Reits, 11 business trusts and six stapled trusts listed. China, however, is not yet a natural home for Reits given its complex tax regime and hefty tax costs for transfers of real estate to Reits.

When approached by BT, Chew Sutat, executive vice-president of SGX and head of sales and clients, said that one of SGX's key business strategies is supporting developments in China including fund-raising by companies and internationalisation of the renminbi. "We are always open to discussion with parties interested in our offerings including investors, companies, brokers or potential partners," he said. "Once these developments are finalised and if they are material, we will inform the market."

Hony Capital currently manages seven private equity funds (five US dollar funds and two renminbi funds) and one renminbi mezzanine fund with more than 46 billion yuan in assets under management, according to its corporate website. It holds a deemed stake of 11.83 per cent in Singapore-listed Biosensors International, based on the latter's 2014 annual report.

Mr Zhao told BT that Hony is not actively seeking out privatisation targets in the region, notwithstanding the low valuations seen in regional markets including Singapore.

Speaking earlier at a panel discussion at the forum, Mr Zhao noted that rising consumption, the gradual opening up of Chinese financial services sector and innovation are presenting plenty of opportunities for private sector investors.

But Mr Chew flagged at the same panel that the crowding-out of the private sector by state-owned enterprises and Chinese government interventions to prop up its equity market are among issues that impede efficient capital allocation. "A love-hate relationship with market discipline" poses a challenge for fast-growing companies to raise capital when needed, he added, citing China's 14-month ban on new initial public offerings that lasted till December 2013.

A recent ban on major shareholders, corporate executives and directors from selling stakes in listed companies for six months from July this year to stop the recent stock-market rout also meant that a company could be trading at 120 times price-to-earnings on Shenzhen's ChiNext but those paper gains cannot be monetised by certain individuals.

"This is why for the foreseeable future as the Chinese primary market continues in ebbs and flows, the international centres of Hong Kong, Singapore, New York will continue to be relevant," Mr Chew said. "We definitely expect China will gradually find the right point in time to open its market in a controlled fashion; hopefully it is not two steps forward, one step back but it is three steps forward and hopefully a half-step back."