PE giant Hony Capital makes RE foray

Hony Capital, the Chinese private equity giant with $7.1 billion assets under management, has made a RMB 1.8 billion (€222 million; $291 billion) investment in a Shanghai-listed real estate and construction company.

Hony has bought a 10 percent stake in Chengtou Holdings from Shanghai Urban Construction Investment and Development, which remains the largest shareholder with a 46 percent stake, according to company filings. Hony is now the second largest shareholder in the company.

The deal is expected to be completed over the next 36 months and is pending domestic regulatory approvals, according to the filings. Hony confirmed the deal, but declined to comment on any details.

Although Chengtou’s primary business is real estate, it also has a focus on environmental concerns and methods, according to Johanna Zhang, analyst at Chinese financial research firm Z-Ben Advisors. Domestic media reports speculated that Hony also could be interested in developing that aspect of Chengtou, since the firm has been involved in waste recycling projects before.

Over the past few months, the Chinese government has emphasized the country’s need for urbanisation, and the new government has been seeking business partners to help push that.

Hony’s foray into real estate primarily reflects that it is an “optimist” when it comes to China’s real estate sector, Zhang added. “This year is a focal point for China’s urban policy drive,” she told PERE.

Hony also is a bit of a latecomer in China’s private equity real estate market. Other large private equity houses in the country, such as CITIC Capital and CDH Investments, have been involved in the real estate sector for years. 

Although real estate traditionally has not been the largest part of China private equity firms’ investment thesis, Zhang explained, it still is a significant portion. Many firms invest in real estate as downside protection on their deals.

Zhang said this investment does not reveal much about Hony’s real estate strategy and that further deals in the asset class would reveal more.

Hony’s chief executive John Zhao has said in the past that the firm is looking very seriously at the asset class, but how much of its resources will be allocated to building out a real estate platform and through what structures remains to be seen.