CIC and Blackstone back Greentown China

Sovereign wealth fund China Investment Corp and private equity firm Blackstone Group have invested in a joint venture with mainland property developer Greentown China, writes Reuters. CIC, which is not allowed to invest in China itself, has made the investment through a subsidiary that can invest domestically, reports Reuters.

(Reuters) – Sovereign wealth fund China Investment Corp. (CIC) and private equity firm Blackstone Group have invested in a joint venture with mainland property developer Greentown China, a source close to the deal said.

Greentown said in June in a statement that its wholly owned subsidiary Greentown Real Estate had formed a joint venture with two other partners. But it did not reveal their names, calling them just “JV Partner A” and “JV Partner B.”

It turns out they are some of the biggest names in private-equity investment. CIC, which is not allowed to invest in China itself, has made the investment through a subsidiary that can invest domestically, said the source, who was not authorised to talk to the media and thus declined to be identified.

Greentown declined to comment. CIC and Blackstone did not immediately respond to requests from Reuters seeking comment.

The stake is particularly noteworthy since Beijing is officially looking to calm the property market in China.

The joint venture is not a conventional developer. It will instead focus on retirement and holiday homes, as well as infrastructure. An investment in a conventional residential developer would not be approved, the source said.

Greentown said it had invested 480 million yuan ($75.2 million)in capital to take a 24 percent stake in the joint venture, with another Greentown subsidiary holding another 6 percent.

CIC subsidiary China Jianyin Investment Securities Co. is taking a 60 percent stake in the joint venture, the source said, with Blackstone holding a 10 percent stake.

ORDERLY PRICE DEFLATION?

Hangzhou-based Greentown China has the worst credit risk score among Chinese developers, according to data from StarMine, scoring just 1 out of 100. The company says it is considering selling developments to pay off its debt load.

Shares in Hong Kong-listed Greentown China closed down 2.8 percent on Tuesday, bucking an overall 1.2 percent rise in the Hang Seng index.

Samsung Securities wrote in a note to clients on Tuesday that CIC’s investment into the Greentown venture shows Beijing wants to see “a stable and orderly” deflation of property prices, rather than an abrupt slowdown.

“It also means that it is unlikely for us to see large scale bankruptcy of developers in the sector,” Samsung said. “Central government is starting to extend its helping hand to cushion downside of the property sector easing liquidity in various ways to the developers.”

Wee Liat Lee, Samsung’s head property analyst for China, says the central government has also started to allow state-owned enterprises to invest in real estate again.

“They’re much more flexible now,” he said.