Published June 8, 2009

CapitaLand gets banks to back China splash

By EMILYN YAP

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(NINGBO, China) CapitaLand aims to grow further in China and up to 45 per cent of its total assets may come from operations there in the next few years, says group president and CEO Liew Mun Leong.

Growing China presence: An artist's impression of Raffles City Ningbo. The mall will be CapitaLand's fifth Raffles City project in China.

To support its expansion, the property group has inked cooperation agreements with two major Chinese banks to gain quicker access to up to 25 billion yuan (S$5.3 billion).

Mr Liew was speaking to the press here in Ningbo city last Saturday in conjunction with two CapitaLand events in China. The group soft-opened a Raffles City mall in Beijing last Friday and was joined by Prime Minister Lee Hsien Loong to launch the Raffles City brand in Ningbo last Saturday. The mall in Ningbo will be CapitaLand's fifth Raffles City project in China.

'The China strategy is very simple: we want to build another CapitaLand in China,' Mr Liew said. The group has residential, retail, commercial, serviced residence and real estate financial service businesses across 47 Chinese cities, and the size of the portfolio on a completed basis is about $17.5 billion.

On the balance sheet, CapitaLand's China operations accounted for around 26 per cent or $6.5 billion of all group assets last year, and contributed about 45 per cent of group earnings before interest and tax (EBIT).

According to Mr Liew, the target is for operations in China to make up 40 or 45 per cent of total group assets in the next few years. In this scenario, the proportion of group EBIT from Chinese operations is also likely to exceed last year's 45 per cent.

CapitaLand will expand in cities it is already in and also to new ones, said Mr Liew. The group usually enters new markets through residential projects because of their fast turnaround and higher capital productivity, he added.

In Ningbo, CapitaLand started out with the Summit Residences project. The first phase of 174 apartments, fully sold at around 16,000 yuan per square metre, was handed over to owners in March. The entire 850-unit development sits behind Raffles City Ningbo, which is under construction.

The property group also remains on the lookout for distressed assets, Mr Liew said.

To facilitate funding for new and existing projects, CapitaLand signed cooperation agreements with Bank of China (BOC) and Industrial and Commercial Bank of China (ICBC) to obtain a credit limit allocation of up to 25 billion yuan.The parties will enter into definitive agreements later.

The three-year arrangement will make it administratively easier and faster for CapitaLand to apply for loans from both banks.

Mr Liew believes that this is the strongest commitment from BOC and ICBC to a foreign company in the Chinese real estate sector so far. Projects in China are large-scale and require big amounts of financing, he said.

CapitaLand also continues to raise money through private equity real estate funds, Mr Liew said. Potential sources of funds include private banking clients in search of higher returns in today's volatile investment climate.