Banyan Tree plans China fund after Vietnam

By Daryl Loo

SINGAPORE (Reuters) - Resorts and hotels developer Banyan Tree is taking advantage of increased investor interest in Asian property and is looking to raise up to $700 million for investments in China after the close of its $400 million Indochina fund by the end of this year.

"The response from potential investors has been stronger than we expected given that we're in the midst of a liquity crunch," Banyan Tree (BANY.SI) Executive Chairman Ho Kwon Ping told Reuters in an interview on Monday.

"There's now an aversion to high-risk, high-return types of financial investments and a correspondingly greater interest in previously unsexy stuff like what we are doing, which is a plain vanilla type of development fund," he said.

The company, which owns or manages 23 hotels and resorts under brands like Banyan Tree and Angsana, in February launched the Indochina Hospitality Fund to develop the high-end Laguna Vietnam resort, and other future projects in Cambodia and Laos.

Banyan Tree, Hong Kong-based developer Nan Fung, and HSIL Investments -- a real estate subsidiary of HSBC (HSBA.L) -- have together committed $100 million to the fund.

Shares in Banyan Tree have dropped 35 percent so far this year, underperforming a 13 percent drop in the broader Singapore market .FTSTI, while hotel firm Hotel Properties (HPPS.SI) is down 33 percent while and Plaza HPLZ.SI is up 8.6 percent.

Ho said the Indochina fund is seeking investments mainly from sovereign wealth funds and country-linked investment agencies, such as those in the Middle East and Asia that were not caught up in the credit crisis.

But China remains Banyan Tree's single-biggest opportunity due to its fast-growing middle-class, Ho said, and it will launch the previously postponed China hospitality fund next year to develop more than 10 sites across the country.

"We tested the hypothesis that a high-end resort charging $400 a night could get Chinese clientele. And we validated it, because more than half of our Lijiang clientele are PRC nationals."

CHINA PLANS

The firm has two resorts in China, Banyan Tree Ringha and Banyan Tree Lijiang, both in the Yunnan province. Its new projects are in Chinese cities including Beijing, Shanghai, Chengdu, and two sites in the Tibetan city of Lhasa.

Ho said the company is monitoring the unrests in Tibet before firming up plans for the two new Lhasa projects, adding that business at Ringha and Lijiang in neighboring Yunnan has not been impacted so far.

Monk-led protests in Lhasa this month escalated into riots before spilling over into Chinese provinces occupied by Tibetans. The Chinese government says 18 people died in the violence but Tibetan exiles place the death toll closer to 140.

Banyan Tree, which listed its shares in Singapore in 2006 and has a market value of $740 million, is planning to more than double its number of keys, or rooms, that it owns or manages to about 6,500 in 2010, from nearly 2,200 in 2006.

Ho, who founded the firm in 1994, said he was confident of meeting the growth plans despite investor fears of a U.S. recession that could hit the global economy and luxury travel.