Hillhouse in talks to take developer Soho China private: sources

[HONG KONG] Private equity firm Hillhouse Capital Group is in talks to take property developer Soho China private, said four people with knowledge of the matter, in a deal that could be worth more than US$2 billion and accentuate a trend in Hong Kong.

Asia-focused Hillhouse has been in discussions with Soho China over the past few months, said the people. The husband-wife team of chairman Pan Shiyi and chief executive Zhang Xin owns 64 per cent of the mainland developer that is well-known for its futuristic office buildings.

A deal for taking Soho China private could come after Hong Kong-listed companies have announced take-private deals worth US$20 billion so far in 2020, more than double last year's annual volume, according to Refinitiv data. Undervalued shares were often cited as a reason for such deals.

But with so much cash available with private equity and other long-term investors and a dearth of avenues to earn decent returns, average premiums paid by buyers for those deals jumped to 42 per cent this year from 34 per cent in 2018, as per Refinitiv.

Shares of Soho China soared more than 40 per cent in afternoon trade on Friday after Reuters reported the take-private talks.

Before Friday's surge, Soho China had a market value of about US$1.5 billion and its shares had slumped 24 per cent this year, compared to an 8 per cent fall of the benchmark Hang Seng Index.

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Hillhouse is also considering assuming about 18 billion yuan (S$3.67 billion) of Soho China loans as part of its leveraged buyout, said one of the people. The developer had 33 billion yuan in total debt as at end-June, according to its 2020 interim report.

The Soho China talks are at an early stage and subject to change, said the sources who declined to be identified due to confidentiality constraints.

Hillhouse declined to comment. Soho China didn't immediately respond to a request for comment.

SECOND SHOT

The talks with Hillhouse will be a second shot at going private this year for Soho China. Blackstone Group walked away from a US$4 billion deal earlier in 2020 to take it private.

Blackstone declined to comment when contacted by Reuters on Friday.

For Hillhouse, Soho China would represent its biggest bet on the Chinese real estate market, even in the face of a softening office property market amid the Covid-19 pandemic.

Founded by Chinese businessman Zhang Lei, Hillhouse is raising what would be Asia's largest US dollar-denominated fund targeting US$13 billion, and its largest-ever yuan fund of over 20 billion yuan, Reuters has reported.

The deal would be a landmark for Joe Gagnon, the former Warburg Pincus veteran Hillhouse hired earlier this year to lead its real estate investment team built from scratch.

Founded in 1995 by Mr Pan and Ms Zhang, Soho China went public in Hong Kong in 2007. The developer has been scouting buyers for its prime commercial property assets for the past two years as the founders looked to shift their focus to overseas markets.

But talks have failed so far mainly on price, said two of the people.

Buying the company is simpler than acquiring its properties individually and would provide Hillhouse with more certainty in completing a transaction, said one of the people.

REUTERS