Report: Blackstone Scraps China Property Deal

HONG KONG (Reuters) – U.S. private equity firm Blackstone Group (BX.N) has dropped a deal worth about $160 million to buy a commercial building in Shanghai because of worsening market conditions, a newspaper reported on Monday.

Blackstone had been keen to push into the Chinese property market, and sources told Reuters in August that the firm was vying to buy up to four buildings in Shanghai for as much as $1 billion.

But the South China Morning Post reported that plans to acquire a 90 percent stake in Changshou Commercial Plaza from Hong Kong-listed VXL Capital (0727.HK) had stumbled over disagreements on the price.

Citing unidentified sources, the report said the deal had been hatched in March for almost double the 586 million yuan ($86 million) VXL Capital paid for the property in March 2006.

VXL shares had fallen 12.3 percent by 0332 GMT.

Blackstone had also failed to agree on a price for the planned acquisition of the new Skymall shopping centre in Shanghai from Chinese developer Super Ocean Group, the newspaper said.

Super Ocean Group, whose chairman is high-profile executive Ye Lipei, had put a package of four buildings on sale as it sought cash to support its growth in other sectors, sources told Reuters in August.

The four buildings also included the Bank of Shanghai Tower in the Lujiazui area of Shanghai’s Pudong financial district, and Southern Securities Mansion, located on Nanjing Road, one of China’s busiest commercial streets.

Super Ocean had wanted to sell the four buildings together, but potential bidders had the option to purchase three of the four, with the combined price between $730 million-$1 billion.

But investors are getting nervous because of the global financial crisis and forecasts that Chinese property prices will slide, partly because of government measures to cool the market.

Beijing has clamped down on bank lending for construction, implemented a land appreciation tax and brought in several rules to deter property speculation.

Although aimed at the residential market, the steps are cooling appetite for land and starving property firms of funding, so they could also put downward pressure on commercial property prices.

But with property prices already dropping in the southern cities of Guangzhou and Shenzhen by up to 30 percent in the last year, many economists expect Beijing to reverse its stance.

Blackstone, in which China’s sovereign wealth fund holds a stake, opened a Beijing office in early August and hired a former government official to expand its acquisition business in China.

(Reporting by Ng Yuk Hang; Editing by Ken Wills) ($1=6.861 Yuan=1.493 euros)