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MARKETS & INVESTING | Tony Chua, Hong Kong

Guangdong Investment buys 40% equity interest in 3 commercial properties in Guangzhou

The company collaborates with Guangdong Holdings to invest in and develop commercial property projects to further consolidate leading position in Guangzhou commercial property market.

Guangdong Investment Limited (“Guangdong Investment”) on Tuesday announced that the Company’s subsidiary, Guangdong Teem (Holdings) Limited (“Guangdong Teem”), and the Company’s ultimate holding company, Guangdong Holdings Limited (“Guangdong Holdings” or “the Parent Company”), entered into an Agreement (“the Agreement”) to acquire (by Guangdong Teem or through its subsidiary) a 40% equity interest in each of the three Target Companies (“Target Companies”) held by the Parent Company at a total cost not exceeding RMB2,460 million. The acquisition is subject to the Company’s Independent Shareholders’ approval at the Extraordinary General Meeting.

The high quality commercial property projects held by the Target Companies are located in core commercial district of Guangzhou and encompass 1) Comic City, Guangzhou, with a gross floor area of approximately 32,641 square metres (“sq.m.”); 2) the Guangzhou Ming Cheng Commercial Plaza, which is underdevelopment, and will have a total construction area of approximately 110,825 sq.m.; and 3) a plot of land of approximately 22,067 sq.m. located in Zhujiang New City, which is slated to be developed as a commercial property project. According to the valuation performed by an independent valuer appointed by the Company, the total valuation of these three commercial property projects mentioned above (“the Three Projects”) were worth approximately RMB7,820 million as of 31 October 2011.

Pursuant to the agreement, Guangdong Teem will acquire a 40% equity interest in each of the three Target Companies at a total cost not exceeding RMB2,460 million. The total cost comprise a 40%, according to the proportion, of all costs incurred by Guangdong Holdings in the tender process, the Target Companies’ matured loans, accrued interest and the resolution of any related liabilities and responsibilities. If the total costs exceed RMB2,460 million, Guangdong Holdings will solely be responsible for the difference. As a result, the acquisition of Guangdong Teem enjoyed a discount of 21.4%, which is calculated by reference to 40% of the total valuation of the Three Projects which amounted to RMB3,128 million. Upon the completion of the acquisition, Guangdong Teem and the Parent Company will hold 40% and 60% equity interest in each of the three Target Companies, respectively. Guangdong Teem expects to finance the payment of the acquisition through its internal resources and by obtaining bank loan facilities from commercial banks.

As the Target Companies have some properties that are under development or that have yet to be developed, it is expected that Guangdong Holdings and Guangdong Teem may be required to provide further assistance in the form of shareholders' loans to and/or capital injection into the Target Companies, in proportion to their respective holdings of the Target Companies. The Company currently expects that Guangdong Teem may be required to provide further assistance in an approximate aggregate amount of up to RMB415 million, according to a Guangdong Investment report.

Based on fair and equitable commercial principle, Guangdong Teem will collaborate with the Parent Company to invest in and develop the Three Projects. They feature high comprehensive quality, satisfying the essential conditions of a remarkable commercial property, namely prime geographic locations, ideal ancillary facilities and convenient transportation links. Meanwhile, the Three Projects are expected to create synergies with our Teem Plaza in Guangzhou while satisfying long-term operational targets and the positioning of the strategic development of Guangdong Teem and enhancing the leading position of Guangdong Teem in the commercial properties sector in Guangzhou.

Mr. Huang Xiaofeng, Chairman of Guangdong Investment, said, “We believe that our cooperation with the parent company will bring a win-win situation through the integration of our resources, and will bring long-term stable and lucrative returns to our shareholders, with the support of our Parent Company, Guangdong Holdings, and its integrated resources and strength, and leverages the Guangdong Teem’s experience in the commercial real estate arena as well as its considerable brand impact in Guangzhou and the Pearl River Delta region.”

Guangdong Investment currently owns approximately 76% equity interest in Guangdong Teem, which owns and operates the Teem Plaza, Guangzhou comprising Teemall, one of the most popular shopping malls in its prime location in Guangzhou, Teem Tower, a Grade A 45-block commercial building, and the Sheraton Guangzhou Hotel, a five star hotel with approximately 450 guest rooms. Being a renowned shopping center in Guangzhou and the Pearl River Delta region, Teemall has a total gross floor area and leasable area of approximately 160,000 sq.m. and 97,000 sq.m., respectively, and has maintained a high occupancy rate of around 99%.

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