KKR forms China RE fund(3)

The New York private equity firm has set up a five- year fund with Sino-Ocean Land into which both parties are putting $70m.

Kohlberg Kravis Roberts & Co has set up a $140 million joint venture investment fund to invest in real estate projects in China.

The New York alternative powerhouse is putting $70 million into the 50;50 vehicle, with another $70 million coming from its Beijing partner, Sino-Ocean Land Holdings.

The fund was announced today, with KKR said to be investing via KKR SPRE, an affiliate of the KKR China Growth Fund.

A statement by Sino-Ocean to the Hong Kong stock exchange said the investment platform was intended to invest in certain real estate projects in the People’s Republic of China.

Though it is a five-year fund, the parties have options to extend it twice by one year.

Third party investors other than KKR and Sino-Ocean could be tapped up for the investment fund as well.

Sino-ocean said: “The Group strives to explore the possibility of cooperating with an international investment fund to create a viable cooperation platform to invest, operate and manage certain real estate projects. Establishment of the fund is in line with this development strategy.”

It added the fund, called Sino Prosperity Real Estate, had been registered in the Cayman Islands where the KKR China Growth Fund is also established.

Sino-Ocean was founded in 1993 and went public in Hong Kong in 2007. Major shareholders are China Life, which owns 24 percent of the company, and the Nan Fung Group.

It began expanding outside its home Beijing property market in December 2004, and now has high-to-high end residential properties, ‘premium’ office premises, retail properties and serviced apartments in 18 fast growing cities such as Beijing, Shenyang and Changchun in the Northeast region, Dalian and Tianjin in the Pan Bohai Rim, Shanghai, Hangzhou, Wuhan and Chongqing in the Yangtze River Delta.

In total, it has a 24 million square foot landbank and 57 projects at different development stages.

In its recently published 6–month financial report, it said profits at the company had risen 66 percent to RMB7.9 billion ($1.2 billion) compared to 2010. It also said the Chinese government had introduced “various restrictive measures” in the first half of this year. “However, the group still achieved contracted sales of approximately RMB 12.35 billion during the period, representing a considerable growth of 49 percent year-on-year and accounting for about 40 percent of its annual sales target,” it added. Its flagship project is Ocean City, Zhongshan.

LI Ming, chief executive officer, said of the company’s results: “The property sector in China remains very challenging in the foreseeable future. Although the government’s restrictive measures have proved to be effective, we believe they will stay in place for more than one year. In addition, the credit crunch will squeeze out smaller players in the market more rapidly. As a result, our competitive edge will become more apparent.”

Given the uncertain market conditions, the company insisted it planned to accelerate cash inflows from property sales by cutting short the period from acquisition of land plots to presale. It plans to launch 30 projects this year. Ten of them were acquired in 2010.