15 years and still growing strong

One small step for Singapore, one giant step for CapitaLand: that is what it means when its indirect wholly owned subsidiary CapitaLand China Holdings (CCH) acquires a 100 per cent stake in property investment holding company Orient Overseas Developments for a ginormous US$2.2 billion (S$3.06 billion).

Under this deal, announced on Monday, Jan 18, CCH will acquire a real estate business with a portfolio of seven sites located in Shanghai, Kunshan and Tianjin.

CapitaLand, South-east Asia’s largest developer, will pay for the purchase from its existing cash, a significant portion of which arose when it listed its retail arm CapitaMalls Asia last year. CapitaLand raised net proceeds of S$2.7 billion from the public offer.

The transaction price takes into account the portfolio value of the seven sites of about US$2 billion as well as the cash within the business of around US$262 million.

Out of a total 1.48 million sq metres, about 87 per cent is in Greater Shanghai while the remaining 13 per cent is in Tianjin. The property portfolio also contains a mix of residential, prime serviced residences, and sites with integrated development potential.

The acquisition will double CapitaLand’s China property portfolio to 2.8 million sq m and increase the asset exposure to about 36 per cent of total assets, a key milestone in the group’s next phase of growth to enlarge the China portion to 45 per cent.

Dr Richard Hu, chairman of CapitaLand Group, said that the proposed acquisition was a timely and an excellent strategic fit for the company.

“It also fits into our stated goal of growing our asset size in China from the present 28 per cent of total assets to 45 per cent over the next five years,” he added.

CapitaLand president and chief executive Liew Mun Leong explained that the major assets acquired were in the city centre where there is now very limited supply of such land.

 ”Most of the sites have planning and land use approval while some sites have construction permits in place. This is a large development advantage in China and should command a price premium,” he said.

CapitaLand won the right to buy the property after a closed tender by Orient Overseas (International) Ltd, which is divesting its property interests to focus on its core shipping business. CapitaLand was invited to bid for the assets in November 2009 and submitted the bid on Jan 8.

Assuming the acquisition was completed on Sept 30, 2009, the pro forma net debt-to-equity ratio would be 0.3 times and the pro forma cash balance would be $5.5 billion, CapitaLand said.