China Vanke to Form Commercial Property Venture With Carlyle

China Vanke Co. (2202), the nation’s biggest developer by sales, said it agreed to form a venture with the Carlyle Group LP (CG) that plans to buy nine of the company’s commercial properties.

Carlyle Asia Investment Advisors Ltd. will hold 80 percent of the “asset platform company,” with Vanke holding the balance, according to a Hong Kong stock exchange filing yesterday evening. Vanke said the two companies will also set up a commercial-property management company.

Vanke has said it’s seeking smaller equity stakes in property projects as the company moves to divest assets and focus on operations to bolster shareholder returns and market share while reducing reliance on equity financing. Stake sales in commercial properties contributed to a 238 percent jump in investment gains in the first half from a year earlier, Vanke said in its earnings report on Aug. 17, predicting that such trend will continue going forward.

“It is pretty obvious that Vanke wants to get rid of its burden and cash out because rental yields of China’s commercial properties are so low by international standards,” Edison Bian, a Hong Kong-based property analyst at UOB Kay Hian Ltd., said in a phone interview before the announcement. “Plus by bringing in Carlyle, Vanke could learn a lot from their management style.”

The venture will hold commercial properties “over a long period of time” until eventual asset securitization, Vanke said yesterday. Vanke said the preliminary agreement isn’t legally binding and the plan may or may not proceed. It didn’t give financial details of the proposed venture.

Shopping Malls

Carlyle, a Washington-based private equity firm, is in advanced talks with Vanke to buy stakes in nine of its shopping malls, Reuters reported on Aug. 27, citing two unidentified people with direct knowledge of the matter. One person said the deal was valued between 6 billion yuan ($977 million) and 7 billion yuan, while the other said it could be worth as much as 10 billion yuan, according to the report.

The report was “partly true,” Vanke said in an earlier statement. The company hasn’t disclosed details of the properties that it plans to sell.

Vanke has been diversifying its portfolio since the government started to tighten the residential property market four years ago. Vanke President Yu Liang said in May the “golden era” for China’s property market has passed. The company is interested in investing in industrial property and homes for the elderly, according to Yu.

The company focused on shopping malls and community business streets last year, achieving “initial results in exploring non-residential properties,” according to its 2013 annual report.

To contact the reporter on this story: Zhang Dingmin in Beijing at dzhang14@bloomberg.net

To contact the editors responsible for this story: Andreea Papuc at apapuc1@bloomberg.net Joshua Fellman, Bruce Rule

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