Blackstone buys stake in mall firm

Szitic Commercial Property Co Ltd, one of China's largest shopping mall developers and operators, said Monday that private equity giant The Blackstone Group LP and ICBC International, the Hong Kong unit of Industrial and Commercial Bank of China Ltd, will take stakes in the company.

In an online statement, SCP said that Blackstone will take a 40 percent stake and ICBC International will take 6 percent. The value of the transaction wasn't disclosed.

SCP's total asset value will exceed $2 billion after the deal, the company said.

Blackstone, the world's biggest manager of alternative assets including private equity and real estate, manages assets valued at $69 billion. Its holdings in shopping malls cover Asia, Europe and the United States.

Ding Liye, chairman and chief executive officer of Shenzhen-based SCP, said that he is pleased Blackstone and ICBC International have become shareholders.

"The investment is of special significance to us, in that it's the recognition of our efforts in the development and operation of premium commercial properties across the country over the past decade," Ding said in a press release on SCP's website.

Ding said that Blackstone and ICBC International will increase SCP's competitiveness in the commercial property market, building on the former's experience and investment track record and the latter's resources and comprehensive financial services.

The purchase is Blackstone's largest mall investment in Asia to date. The deal will be carried out by Blackstone Real Estate Partners Asia.

According to sources close to the deal, the New York-based company is investing about $400 million in SCP.

An employee at SCP who declined to be identified said that no company officials were immediately available for comment.

Cash-hungry domestic developers are finding it increasingly hard to borrow from banks, and securities regulators are still withholding approval of initial public offerings.

Meanwhile, foreign investors are posing greater competition as they pursue property in China, given its favorable long-term prospects.

Bank lending used to be the most important capital source for property developers. But the percentage of bank loans in the overall capital mix of developers declined from more than 20 percent in previous years to about 15 percent in 2012, according to Hui Jianqiang, research director of Beijing Zhongfangyanxie Technology Service Ltd.

Meanwhile, the participation of foreign capital is rising rapidly. Although accounting for only 0.5 percent of all development capital during the third quarter, foreign investors put 15.7 billion yuan ($2.6 billion) into real estate, up 46.7 percent quarter-on-quarter.

But there are also rising concerns that commercial property is headed for a glut. Competition in the retail sector has intensified as new supply surges, posing significant challenges for existing projects. For example, in the third quarter, a shopping mall closed in Tianjin.

In addition, mid-range department stores face mounting operational challenges from the dual pressures of shopping malls and the increasing popularity of e-commerce, according to global commercial real estate services firm CBRE Group Inc.

Analysts said that they anticipate more operational failures and withdrawals from retail property in some cities as supply escalates.

However, Jeremy Helsby, group chief executive of United Kingdom-based real estate adviser Savills Plc, advised investors interested in Chinese property assets to be patient.

"I call it growing pains. China is growing, and when you grow, you have pain. In the long term, there will be huge growth coming in, and [empty properties] will gradually be occupied," said Helsby.

Public information shows that SCP is building partnerships with various foreign investors. In May, the company sold a 49 percent stake in the Suzhou In-City Mall and the Hangzhou Gudun In-City Mall, two regional shopping malls it owned and operated, to another global alternative asset manager, The Carlyle Group LP.