China's 2 trillion yuan public projects lure skyscraper builder

[SHANGHAI] China's biggest developer by revenue is branching out into subways and water treatment after Premier Li Keqiang called for companies to help fund nearly 2 trillion yuan (S$430 billion) of infrastructure projects.

Greenland Holding Group Co, which is building what would be China's second-highest skyscraper, set up a 100 billion yuan subway fund with partners in May.

Its investment arm said it plans to create funds for water treatment by the end of the year and sell asset-backed securities to raise cash from individual investors for subways. The move comes after the nation advertised last month 1,043 private-public partnerships from garbage-treatment to sewers in 29 provinces.

Premier Li is seeking to build more highways, bridges and sewers as he defends a 7 per cent economic growth target while trying not to worsen local-government debts. The government urged financial institutions on Wednesday to accelerate approval of loans to PPP projects, after last month encouraging the tie- ups to help replace public borrowings with private obligations.

"The government wants to exchange land for subways and Greenland wants to exchange subways for land," Geng Jing, president at Greenland Financial Holdings Group said in an interview in Shanghai. "Our subway PPP funds will focus on subway construction and operation as well as property development along those lines."

The company has signed memorandums with five cities- Harbin, Chongqing, Xuzhou, Nanjing and Jinan-for six major subway lines since last year, according to Geng. Other developers are also considering building PPP funds and are trying to learn from Greenland, Geng said.

The company may make the water treatment funds province- specific, according to Geng.

"To step up infrastructure investment is the easiest way to stimulate the economy," said Zhou Yue, a bond analyst at China Merchants Securities Co. in Shanghai. "With local government financing vehicles barred from raising money for local governments, authorities have to look for new ways to raise funds."

Most PPP capital may still come from banks, which have a lower expectation of returns, according to Mr Zhou. Property development along subway lines could help boost profitability to make up for the lower returns on subway construction and operation themselves, Mr Zhou said.

Only about 10 per cent of a total 2.5 trillion yuan of PPP projects ever announced in China have been started and signed with corporate partners, according to UBS AG estimates.

"The fear from the private investor in China is non- commercial interest driving the return lower because the goal of the public and the private is usually not the same," said Lian Hoon Lim, managing director for advisory firm AlixPartners LLC in Hong Kong.

BLOOMBERG