FountainVest Leads PIPE for Chinese Developer

HONG KONG (Reuters) – A consortium led by private equity firm FountainVest Partners plans to buy nearly $99 million worth of convertible bonds issued by Central China Real Estate (0832.HK), sending its shares up nearly 9 percent on Wednesday.

Central China signed an agreement to issue HK$765 million ($98.72 million) worth of convertible bonds to the consortium, the developer said in a statement to the Hong Kong stock exchange, confirming an earlier Reuters report.

If fully exercised, the consortium would have about a combined 10.98 percent of Central China’s enlarged share capital, according to the statement.

Mid-sized Central China mainly focuses on residential properties in Henan, the country’s most populous province with a population of roughly 100 million.

“Unlike some other cities in China, property valuation in Henan is still at a reasonable level at which many residents can afford a house,” said Frank Tang, chief executive of FountainVest Partners.

“Henan has a large population that will fuel strong demand for affordable property in the next few years, so the market has huge potential,” Tang told Reuters in a telephone interview.

The bonds due in 2014 carry an annual coupon of 4.9 percent and are convertible into new shares of Central China at HK$3.10 per share, the company said.


FountainVest, a $1 billion private equity fund backed by Singapore state investor Temasek Holdings [TEM.UL], will buy HK$687 million ($88.65 million) worth of convertible bonds, while West Hill as a co-investor will take the remaining HK$78 million worth of bonds, according to the statement.

The deal would become FountainVest’s largest investment since the fund was launched in late 2008.

Shares of Central China, which last closed at HK$2.39, were suspended on Wednesday morning due to the deal. The developer resumed share trading at 0630 GMT and its shares soared 8.79 percent to HK$2.60 by Wednesday’s close.

CapitaLand (CATL.SI), Southeast Asia’s biggest real estate firm, is already a major shareholder in the Chinese developer.

China property prices, especially in top-tier cities like Shanghai and Beijing, spiked on rapid economic growth and foreign investment in the past decade until the recent global financial crisis.

On Tuesday, Reuters reported the real estate investment arm of Morgan Stanley (MS.N) aimed to sell a top office building in Shanghai bought for 2 billion yuan ($292.8 million) in 2006 for about 2.5 billion yuan.

Other property funds run by the Carlyle Group [CYL.UL] and Blackstone Group (BX.N) are also shifting focus to second-tier cities, industry sources have said, as some analysts warn property may be overvalued in Shanghai and Beijing.

In Henan, the average market price for a downtown apartment is around 4,000 yuan per square meter, compared to over 30,000 yuan in some parts of Shanghai.

By George Chen
(Editing by Valerie Lee)