Blackstone in talks to take developer SOHO China private in $4B deal

Blackstone entered exclusive discussions in early February

U.S. private equity firm Blackstone Group Inc is in exclusive talks to take SOHO China Ltd private in a $4 billion deal, said two sources, in one of its biggest bets yet on the Chinese market.

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Blackstone - in news reported here for the first time - entered exclusive discussions in early February with Hong Kong-listed SOHO China, a major prime office developer in China. The U.S. firm offered HK$6 ($0.77) per share to take the company private, said the people with direct knowledge of the matter.

The price represents an almost 100 percent premium to the HK$3.03 average price of SOHO China's shares in January.

On Monday the shares closed at HK$2.98.

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The details of privatizing SOHO China, founded in 1995 by chairman Pan Shiyi and his wife Zhang Xin, are expected to be finalized in the coming weeks, said the people, declining to be identified as they were not authorized to speak to media.

Blackstone would also take over the debt of SOHO China, said one of the people, which stood at 32.68 billion yuan ($4.70 billion) as of the end of June 2019, according to its interim report.

The move demonstrates Blackstone's confidence in the world's second-largest economy in the face of a softening property market and economic slowdown. The New York-based alternative asset management giant is a long-time property specialist. In September, it raised $20.5 billion in the world's largest-ever real estate fund. In 2018, it raised $7.1 billion for its biggest-ever property fund in Asia.

China's office rental sector is expected to come under strain from the economic impact of the novel coronavirus outbreak, although surveys have shown most investors so far expect the sector to bounce back rapidly.

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SOHO China's investment properties were valued at $8.78 billion as of the end of June last year, showed its 2019 interim report.

The developer started to sell prime commercial property assets last year as its founders looked to shift their focus to overseas markets. Among the sales were eight office projects in Beijing and Shanghai. Blackstone was one of the buyers, said the second source.

Buying the company is simpler than acquiring its properties individually and would provide Blackstone with more certainty in completing a transaction, said both people.

Pan and Zhang own 63.93 percent of SOHO China and plan to retain a small stake after any deal with Blackstone, said the second source.

TickerSecurityLastChangeChange %
BXBLACKSTONE GROUP45.63-0.94-2.02%

Blackstone declined to comment. SOHO China did not respond to requests for comment.

SOHO China changed its business model in 2012 to build-and-hold from build-and-sell to maintain a more stable income stream from rents rather than property sales, but that has led to a slide in underlying profit.

SOHO China posted a net profit of 565 million yuan in the first six months of 2019, down 48 percent from the same period a year earlier.

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Blackstone's China real estate investments include $1.25 billion paid for Mapletree Business City Shanghai and VivoCity Shanghai.

($1 = 7.7675 Hong Kong dollars)

($1 = 6.9499 Chinese yuan renminbi)

(Reporting by Julie Zhu; Additional reporting by Clare Jim; Editing by Jennifer Hughes and Christopher Cushing)