CapitaLand to divest partial stakes in China projects to Ping An for 46.7b yuan; deal to yield net proceeds of over S$2b

CAPITALAND will divest partial stakes in six of its Raffles City developments in China to Ping An Life Insurance Company of China for 46.7 billion yuan (S$9.6 billion), unlocking over S$2 billion in net proceeds that will be partly ploughed back into new economy assets in China.

CapitaLand will retain a stake of 12.6 per cent to 30 per cent in each development, namely Raffles City Shanghai, Raffles City Beijing, Raffles City Ningbo, Raffles City Chengdu, Raffles City Changning (Shanghai) and Raffles City Hangzhou, the group said in a filing to the Singapore Exchange on Monday morning. The group currently holds stakes ranging from 30.7 per cent to 55 per cent.

Meanwhile, CapitaLand will continue to provide asset-management services for these developments, enabling it to earn fee income.

The transaction will generate net proceeds of over S$2 billion for the group, and is slated for completion in Q3 of this year, CapitaLand said. At 46.7 billion yuan, Ping An is paying a premium of 6.7 per cent to valuation.

Post transaction, the group expects its net tangible assets to rise to S$4.15 per share from S$4.09 per share, based on the audited consolidated financial statements for the financial year ended Dec 31, 2020.

With this latest deal, the total capital recycled across the group will be boosted to about S$11.2 billion this year, surpassing its annual S$3 billion target by more than three times.

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Overall, UOB Kay Hian analyst Adrian Loh sees the deal as a positive one for CapitaLand, giving the group’s profits a lift this year. He said: “It makes sense from a strategic perspective because CapitaLand has talked about increasing their return on equity. Taking more of an asset-light strategy and moving towards more of a recurring-fee income business will help.”

RHB analyst Vijay Natarajan said: “The move aligns with CapitaLand’s strategy to rebalance its portfolio by reducing some exposure to the retail sector and into new-economy sectors, such as data centres and industrial assets.”

Analysts also reckon Ping An is a good fit as a strategic partner, opening the door to possibly further deals down the line. “Ping An is well known in the Chinese market, making them a good partner for CapitaLand,” Mr Natarajan noted. Ping An, on the other hand, is seeking passive income and exposure to the growth in China, he added.

Having Ping An in the fold could also potentially lead to more transactions between the duo in the future, suggested Mr Loh.

Part of the over S$2 billion in net proceeds will be used to support the group’s pivot to new-economy assets such as business parks, logistics and data centres, said Puah Tze Shyang, chief executive of investment and portfolio management at CapitaLand China, in a statement. He added: “CapitaLand plans to grow its China exposure in this sector to S$5 billion over the next few years, from the S$1.5 billion as at end 2020.”

CapitaLand’s group chief executive officer Lee Chee Koon pointed out that the group’s private equity (PE) fund manager status in China “has opened up more capital partnership opportunities with domestic institutional investors for CapitaLand”. It had recently registered as a PE fund manager in China, and announced plans for a renminbi-denominated fund product in Q4 of 2021, which could capture investment opportunities in new-economy assets.

Mr Lee added: “With multiple recycling vehicles and strategies, as well as diverse capital sources, we are confident of our next stage of growth as an asset-light, capital-efficient global real estate investment manager with a focus on Asia.”

All this comes as CapitaLand undergoes a proposed structuring, announced back in March, that will see its investment-management platforms and lodging arm parked under an asset-light entity, CapitaLand Investment Management (CLIM), which will be listed on the Singapore Exchange. Meanwhile, its property development business will be privately owned.

Other insurance-linked firms have been on an acquisition path too, lured by the prospect of stable yields in the real-estate sector amid a low interest rate environment. These include PGIM Real Estate, the real-estate investment unit of PGIM, which in turn is the global investment management business of Prudential Financial Inc. In April, PGIM Real Estate acquired 108 Robinson Road for US$107 million under its strategy to build up its footprint in Asia.

This came after PGIM Real Estate raised US$970 million in the fourth of its series of Asia-Pacific value-add funds, The Business Times reported in February. Benett Theseira, head of Asia-Pacific for PGIM Real Estate, said at the time that the fund, AVP IV, would be looking at data centres across the Asia-Pacific, in addition to office assets in Singapore and Tokyo and logistics assets in China and Australia.

In May, the life insurance arm of conglomerate Samsung and South Korea's biggest insurer, Samsung Life, scooped up a 25 per cent stake in Savills Investment Management (Savills IM) for 63.75 million pounds (S$118.67 million), it was reported. Under the four-year partnership, Samsung is also committing US$1 billion to support Savills IM's investment plans.

And in January, OUE Commercial Real Estate Investment Trust said it was divesting a 50 per cent stake in OUE Bayfront at Collyer Quay for S$634 million to a special purpose vehicle managed by Allianz Real Estate.

Shares of CapitaLand climbed after the announcement to close at S$3.74 on Monday, up six cents or 1.63 per cent.

READ MORE: CapitaLand obtains PE fund manager status in China, to launch first RMB fund in Q4