China's most acquisitive buyers of overseas assets, which have recently come under regulatory scrutiny, are now selling prime offshore properties to conform with Beijing's policies aimed at cooling outbound investment.
Fosun Group sold the 73 Miller St. grade A office tower in Sydney for A$150 million to a joint venture involving Australia's Propertylink Group.
Meanwhile, HNA Group Co. Ltd., which had entered into US$50 billion worth of deals over two years, is looking to sell a large portfolio of commercial properties worth roughly US$6 billion in New York, London and other major cities, The Wall Street Journal reported Dec. 19, citing people familiar with the matter. Among the 20 properties the company aims to sell are 1180 Avenue of the Americas in Manhattan, N.Y., and the City Center skyscraper in downtown Minneapolis, according to the report. Some of the properties, such as an office building on Mission Street in San Francisco and 850 Third Ave. in Manhattan's Midtown East, were purchased by HNA as recently as 2016.
The sales follow China's move to crack down on what the government terms "irrational" foreign purchases by Fosun, HNA and other active acquirers such as Anbang Insurance Group Co. Ltd. and Dalian Wanda Group Corp. Ltd. since early 2017. China's nonfinancial outbound investment fell 40.9% year over year in the first 10 months of 2017. In August, the Chinese government issued new rules clamping down on overseas deals in the property, hotel, film, entertainment and sports sectors while encouraging acquisitions in countries included in the Belt and Road initiative.
With mounting government and financing pressure, these high-profile companies are shifting their focus to domestic investing. HNA's negotiations to sell overseas properties are part of its strategic adjustment to comply with government policies, CEO Adam Tan said, according to a Dec. 6 report in 21st Century Business Herald.
Fosun, whose portfolio includes French resort chain Club Med and Canada's Cirque du Soleil, said its investments will be strictly in line with the country's strategic plans. "China will always be the foundation and focus of our investment and development," Fosun CEO Wang Qunbin said in a post on the company's website in July.
Wanda added that it was open to "business opportunities" related to its portfolio of foreign landmark properties, but gave no confirmation of disposal plans, Reuters reported Nov. 21.
"I expect that in 2018, we'll see the great unwinding of China's offshore M&A binge," Brock Silvers, managing director at investment consultancy Kaiyuan Capital, said in an interview.
On one hand, Beijing has instructed such offshore acquirers to deleverage their balance sheets. Many of the assets in question were not only purchased with high gearing, but were also not operationally core assets, Silvers said. On the other hand, many of the sellers need cash, and neither commercial nor investment banks are coming to the rescue.
Still, Fosun told S&P Global Market Intelligence that real estate investment remains one of its fundamental financial investments. It said the Sydney tower sale was an independent investment decision made by one of its international insurance subsidiaries.
"The recent sale of 73 Miller St. ... reflects [the subsidiary's] ongoing commercial strategy of property investment as part of its diversified investment portfolio," the company said.
HNA told S&P Global Market Intelligence that the office building at 1180 Avenue of the Americas in Manhattan is the only property it has announced for sale.