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First Sponsor in joint venture to develop land in China's Guangdong province

MAINBOARD-LISTED First Sponsor Group has entered into a joint venture agreement with Poly Bay Area Investment Development Co (Poly Bay Area) and Shoucheng Dongguan Real Estate Co (SDRE) to jointly develop three plots of land in Guangdong, China, that was acquired for some three billion yuan (S$592 million), the Hong Leong-linked property developer announced on Monday morning. 

The joint venture company (JVCo), Dongguan Baozhu Industrial Investment Co, will develop the land collectively known as Wanjiang Victory Land. 

In a regulatory filing on Monday, First Sponsor Group noted that the investment in Wanjiang Victory Land is in the ordinary course of the group's business, and in line with its strategy to expand its footprint in Dongguan to leverage the potential of the Greater Bay Area. The joint venture will also enable it to leverage the expertise of Poly Developments and Holdings in the management of a large-scale mixed-used development, the company said. 

Poly Bay Area is a wholly owned subsidiary of Poly Developments and Holdings Group Co, a China-based firm listed on the Shanghai stock exchange. Poly Developments and Holdings develops, invests in and operates real-estate properties both in China and internationally.

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It is in turn a subsidiary of China Poly Group Corp, a state-owned enterprise in China. As at June 14, Poly Developments and Holdings had a market cap of 153.2 billion yuan.

Separately, China-incorporated SDRE is a subsidiary of Regent Land Investment Holdings, which is fully owned by Shu Zhen, chief executive officer of First Sponsor Group's operations in Guangdong. 

Wanjiang Victory Land is made up of three adjacent plots of mixed-used development land situated in the south-east of Wanjiang District, in Dongguan, Guangdong.

It has a total site area of 42,343.4 square metres, and a total gross floor area (GFA) of about 214,739 sq m, of which 3,037 sq m are for public amenities. The GFA comprises 133,764 sq m of residential space, and 80,975 sq m of commercial space. The residential component has a lease tenure of 70 years, and the commercial component has a lease tenure of 40 years.

Wanjiang Victory Land is held by the JVCo, and was acquired for three billion yuan. Under the joint venture agreement, the three parties will contribute cash amounts to the registered capital of the JVCo, in proportion to the equity interests which they have respectively agreed to subscribe for. 

On June 14, Poly Bay Area contributed 1.05 billion yuan in cash for a 70 per cent stake in the JVCo, First Sponsor Guangdong contributed 405 million yuan for a 27 per cent stake, and SDRE contributed 45 million yuan for a 3 per cent stake. Following the capital contributions, the JVCo has become an associated company of First Sponsor Group. 

In addition, the parties have agreed to extend shareholders' loans to the JVCo relative to their equity interests, of which First Sponsor Guangdong has pumped in another 405 million yuan in cash. 

First Sponsor Guangdong has also undertaken to further extend about 24.7 million yuan as loans before June 19, 2019. This amount will be used for stamp duties and working capital purposes, and is not included under the purchase price, a company spokesman told BT on Monday.

First Sponsor Group's investment in the JVCo is funded through its existing cash resources, the company said. Accordingly, the transactions contemplated under the joint venture agreement are not expected to have any material impact on the group's consolidated earnings per share or net tangible assets per share for the current financial year, the company added. 

Shares in First Sponsor closed at S$1.28 on Friday, up 1.6 per cent, or two Singapore cents.