Exclusive: Blackstone in talks to take developer SOHO China private in $4 billion deal - sources

HONG KONG (Reuters) - Blackstone Group Inc is in exclusive talks to take SOHO China Ltd private in a $4 billion deal, said two sources, in one of its biggest bets yet on the Chinese market and which sent the target’s shares to a 21-month high.

FILE PHOTO: The ticker and trading information for Blackstone Group is displayed at the post where it is traded on the floor of the New York Stock Exchange (NYSE) April 4, 2016. REUTERS/Brendan McDermid/File Photo

The U.S. private equity firm entered exclusive discussions in early February with Hong Kong-listed SOHO China, a major prime office developer in China. The U.S. firm offered HK$6 ($0.77) per share to take the company private, said the people with direct knowledge of the matter.

The price represents an almost 100% premium to the HK$3.03 average price of SOHO China’s shares in January.

SOHO China’s shares jumped as much as 39.9% to HK$4.17 following the Reuters report - their highest since June 2018 - before trading in them was halted at 11:12 local time on Tuesday.

The details of privatising SOHO China, founded in 1995 by Chairman Pan Shiyi and Chief Executive Zhang Xin, are expected to be finalised in the coming weeks, said the people, declining to be identified as they were not authorized to speak to media.

Blackstone would also take over the debt of SOHO China, said one of the people, which stood at 32.68 billion yuan ($4.70 billion) as of the end of June 2019, according to its interim report.

The move demonstrates Blackstone’s confidence in the world’s second-largest economy in the face of a softening property market and economic slowdown. The New York-based alternative asset management giant is a long-time property specialist. In September, it raised $20.5 billion in the world’s largest-ever real estate fund. In 2018, it raised $7.1 billion for its biggest-ever property fund in Asia.

China’s office rental sector is expected to come under strain from the economic impact of the novel coronavirus outbreak, although surveys have shown most investors so far expect the sector to bounce back rapidly.

SOHO China’s investment properties were valued at $8.78 billion as of the end of June last year, showed its 2019 interim report.

The developer started to sell prime commercial property assets last year as its founders looked to shift their focus to overseas markets. Among the sales were eight office projects in Beijing and Shanghai. Blackstone was one of the buyers, said the second source.

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

Husband and wife Pan and Zhang own 63.93% of SOHO China and plan to retain a small stake after any deal with Blackstone, said the second source.

Blackstone declined to comment. SOHO China did not respond to requests for comment.

SOHO China, known for its distinctive, modern developments and celebrity management team, went public in Hong Kong in 2007, as Chinese property firms tapped markets to fund expansion in what was then a booming sector. The IPO priced at HK$8.3 per share, but the stock plunged to a low of HK$1.006 during the global financial crisis in the following year.

Pan, known for his outspokenness about the real estate market, has often appeared in fashion magazines and other media alongside Zhang, who worked at Goldman Sachs in the early 1990s.

SOHO China changed its business model in 2012 to build-and-hold from build-and-sell to maintain a more stable income stream from rents rather than property sales, but that has led to a slide in underlying profit.

SOHO China posted a net profit of 565 million yuan in the first six months of 2019, down 48% from the same period a year earlier.

Blackstone’s China real estate investments include $1.25 billion paid for Mapletree Business City Shanghai and VivoCity Shanghai.

Reporting by Julie Zhu; Additional reporting by Clare Jim; Editing by Jennifer Hughes and Christopher Cushing