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TPG completes PIPE in Chinese developer

The US private equity firm has bought a 20 percent stake in New York-listed Xinyuan with a $108.6 million investment, in one of its first forays into the Asian real estate sector.

Fort Worth-based TPG Capital, the global private equity firm, has made a real estate-related investment in China via a $108.6 million stake in New York-listed Chinese developer, Xinyuan Real Esatate.

The investment is composed of $75.8 million in convertible notes due in 2018 and a $32.9 million equity investment in the common shares of the company, according to a joint statement. The convertible notes carry an annual cash coupon rate of 5 percent.

Assuming the loan will be converted into common shares, this will give TPG a 20 percent stake in Xinyuan altogether. TPG will also gain the right to appoint a non-executive director to Xinyuan’s board of directors.

TPG declined to disclose which fund it made this investment out of. To date, however, TPG has made most of its real estate-related investments out of its primary private equity fund, TPG Partners VI, or one of its two separate accounts with Ivanhoé Cambridge, the real estate subsidiary of Caisse de dépôt et placement du Québec, and the New Jersey Division of Investment.

The deal is subject to customary closing conditions. When closed, Xinyuan will use TPG’s capital injection primarily for land acquisition and general corporate development expenses, according to the release. As a developer of large-scale residential projects aimed at middle-income consumers, Xinyuan primarily focuses on development projects in China’s tier II cities. It was also the first real estate developer from China to be listed on the New York stock exchange.

“We are impressed by Xinyuan’s solid financial position and experienced management team and look forward to providing our resources and experience to help Xinyuan achieve its strategic objectives,” Steve Sun, partner and managing director of TPG, said in the statement. “We believe Xinyuan is well positioned to continue to deliver growth and solidify its position in its key markets going forward.”

TPG is not the first private equity firm to invest in Xinyuan. Equity International led the company’s IPO in 2007 with a $10 million investment, and sold its stake in 2010 via a series of market sales for an undisclosed amount.

With $55.3 billion assets under management, TPG has four offices in the greater China region and several private equity funds dedicated solely to the country. TPG has slowly been building up a global real estate team since 2009, and the firm considers real estate one of its top three strategic priorities, according to Kelvin Davis, the de facto head of real estate and former head of North American buyouts at TPG. The private equity firm has put $1 billion of equity to work in US and European real estate this past year alone.