June 17,2009

Investors Looking at Overseas Properties, Prompted by Low Prices, Bubbly Domestic Market

By CSC staff, Shanghai

A frothy market in China makes both developers and investors interested in real estate nervous. But with overseas property markets often quite undervalued, Chinese investors are heading offshore to take advantage of fire sale prices.

The China Investment Corporation (CIC), a sovereign wealth fund, has announced it is participating in an AUD485 million financing of Australia's Goodman Group, a major industrial property investor, jointly with Macquarie Bank. Of the total, AUD200 million will come from CIC and the remaining AUD285 million from Macquarie Bank.

Goodman Group had announced that Macquarie Bank planned to provide it with AUD300 million of financing, but said yesterday that to get CIC into the financing plan, Macquarie Bank had cut back its amount by AUD15 million, and the total was lifted to AUD485 million. The term for this financing plan is nine months, and will be due in February 2010, with an extendible period of 15 months.

According to the financing plan, Goodman Group will also provide the option of 255.3 million shares of stapled securities, with a two year term and exercise price of $0.4 per share to its two creditors, who are to share the option according to the proportion of funds they provide.

"We view the relationship with CIC as highly strategic and believe that together we can capitalize on significant opportunities created by current market conditions,'' says Greg Goodman, Goodman Group CEO.

Goodman Group is the largest comprehensive industrial property group listed on the Australian Securities Exchange, as well as one of the largest industrial property fund managers in the world. Its business covers Australia, New Zealand, Asia, and Europe. The company has two subsidiaries, Goodman International, Limited, and Goodman Industrial Trust.

Due to the global financial ruckus, real estate trust companies have found themselves short of funds and often badly in need of deleveraging. A CIC insider told China Business News that its investment in Goodman Group was not directly related to the real estate market in Australia, but aimed to provide the company with liquidity support and to optimize its long-term capital structure. Goodman Group's main business is logistics and industrial property.
 
The real estate trust fund business is quite mature in Australia, and usually provides a stable cash flow. Recently CIC adjusted the structure and function of its investment departments, and a special team is now in charge of its real estate investment.

Individual investors, among them private company owners in Wenzhou, Zhejiang, have been seeking low-priced overseas properties, and recently more large real estate companies are following suit.

Hong Kong-based Gateway Capital Advisers plans to lead a group of major Chinese developers to the US at the end of July to seek investment opportunities. Their main investment focus will include mortgaged properties in major city centers that are being auctioned, as these properties?prices have been 40% discounted, and can provide stable rent income in future.

China's surging land and housing prices are pushing many developers with cash on hand to pay attention to undervalued overseas properties. The transparent US market, specialized property investment and management institutions, and convenience in local financing after getting the property are all favored by Chinese real estate companies. Next, large state-owned developers are planning to look up the market.

 

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