Carlyle in talks to acquire Vanke's China commercial properties

HONG KONG Wed Aug 27, 2014 10:40am EDT

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HONG KONG (Reuters) - Global private equity firm Carlyle Group (CG.O) is in talks with China Vanke Co Ltd (2202.HK) to acquire some of Vanke's commercial properties through assets or shares acquisition, the biggest Chinese property developer said on Thursday.

Vanke is negotiating with the private equity giant's Carlyle Asia Investment Advisors Ltd and expects to enter a memorandum of understanding in the next few days, it said in a filing on the Hong Kong stock exchange. No details of the deal were given.

Vanke's statement cames after two people with knowledge of the matter told Reuters both parties were in advanced talks on Carlyle buying stakes in nine of Vanke's shopping malls.

One of the sources said the deal was valued at between 6 and 7 billion yuan ($976 million to $1.14 billion), while the other said it could be worth up to 10 billion yuan. Both declined to be named as details of the discussions were private.

A non-binding memorandum of understanding could be signed as early as Thursday, the people said. The location of the malls was not disclosed.

Carlyle declined to comment.

The deal would give Carlyle access to China's commercial real estate market where properties carry yields of around 4.5 to 6 percent. Rental margins of commercial properties are at around 60-80 percent, higher than the 30-50 percent of residential projects.

Vanke would also benefit from the deal, which would help it quickly generate returns as a slump in the residential market, and a slowing economy, tightens liquidity for Chinese developers.

China Resources Land (0688.HK), another big property developer, has also said it was looking into financial tools such as real estate investment trusts and property funds to generate cash.

"Relying solely on cash contribution from residential projects is difficult to support a further and faster development of our commercial projects," China Resources Land Chairman Xiangdong Wu told a news conference last week.

Private equity firms can provide capital through financing or structure investment funds with developers, but some companies have also acquired whole buildings or taken equity stakes in developers.

Blackstone Group LP (BX.N) in November bought a 40 percent stake in unlisted Shenzhen-based shopping mall group SCP Co Ltd for around $400 million.

Shopping malls, however, see slower return on invested capital than other commercial properties as they depend on rental income rather than on one-off sales.

($1 = 6.14 Chinese yuan)

(Reporting by Clare Jim and Stephen Aldred; Additional reporting by Lee Chyen Yee and Bangalore newsroom; Editing by Anne Marie Roantree, Miral Fahmy and David Evans)

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