海航集团| HNA Sells Rights to Haikou Project to R&F for RMB 5.7B

Guangzhou R&F boss Li Sze-lim looks pleased with his new Haikou project

Guangzhou R&F Properties, the white knight which bought out 70 Dalian Wanda hotels when Wang Jianlin’s commercial developer hit the wall financially, is now officially the partner of another embattled Chinese conglomerate. The Guangdong-based developer announced on Friday that it will be paying approximately RMB 5.7 billion ($905 million) to HNA for unspecified rights regarding development of a 670,000 square metre residential and commercial project in Hainan.

Hainan R&F, Guangzhou R&F Properties’ arm in Hainan, has signed a framework agreement with HNA Real Estate Group to “cooperate” in the development and construction of Haihang Shoufu (海航首府), a high-end housing and commercial project in Hainan’s capital city Haikou.

The deal, which comes after two of the towers in the mega-project topped out in January, appears to provide much needed financial relief to HNA in return for it giving up rights to a potentially lucrative mega-project in one of China’s most sought-after real estate markets.

R&F Gets Exclusive Rights to Do Something

A rendering of Haihang Shoufu depicts Haikou’s radiant future

In a filing to the Hong Kong Stock Exchange on Friday, R&F stated that the expected consideration for “the cooperation” on the 670,000 square metre mixed-use complex is approximately RMB 5.7 billion, however, the top 20 Chinese developer was more circumspect in revealing what it expected to receive in return for its cash.

“The specific cooperation form and cooperation consideration shall be subject to the formal agreement,” R&F stated. The document also made clear that HNA Real Estate Group has agreed to “establish sole and exclusive partnership with Hainan R&F to ensure that no further negotiation and consultation with any other third party in respect of the Project Land.”

“The Company believes that the entering into of the Framework Agreement will benefit the Company’s business development in Hainan by expanding the Company’s land bank in Hainan, and consolidate the Company’s market position in Hainan,” said Li Sze Lim, chairman of Guangzhou R&F Properties in the statement.

Last month, Mingtiandi reported that the Guangzhou property developer purchased the Haihang Shoufu project from HNA for an unknown amount. So far, the parties have indicated that their cooperation could include “transaction of stakes, co-development and commissioned construction, of the project according to HNA Infrastructure’s own statement on the deal.

Home Project Already Under Construction

Haihang Shoufu under construction earlier this year

R&F’s new deal gives the developer rights related to HNA’s Haihang Shoufu project, which occupies plots D16 and B18 on either side of Guoxing Avenue in Haikou. The pair of sites take up a total of 93,900 square metres in HNA’s Dayingshan CBD development on the site of Haikou’s former airport, with a pair of towers in the project having topped out in January.

HNA’s decision to sell the 670,000 square metre (by GFA) residential and commercial development soon after the first towers topped out underscores the group’s ongoing financial predicament. In China local regulations typically stipulate that a residential project may begin sales after a project’s structure has reached its full height, with strong sales usually alleviating any need for further financing. Other projects near Haihang Shoufu are already selling for approximately RMB 20,000 per square metre, and the recently announced free trade zone is already boosting demand for homes in the island province.

According to local media reports, HNA has already invested nearly RMB 6.5 billion into the B18 plot alone. The mixed-use development is part of the company’s 3.8 million square metre Dayingshan CBD project, which includes plans for a Hilton hotel, the 429-metre-high Haikou Twin Towers commercial project and a school developed by HNA. The group originally secured rights to the former airport site in 2009.

Next Generation Hainan: Free Trade and Corporate HQ

Guangzhou R&F’s investment in the Haikou project appears to come at an opportune time after the Chinese government recently announced plans to transform Hainan Island into a free trade zone and to permit some forms of gambling in the province.

In February, government agencies under a party reform group headed by Xi Jinping were reportedly drafting a proposal to allow gambling on the southern Chinese Island, according to aBloomberg report citing familiar sources. The latest press accounts suggest that the government would support horse racing and sports lottery in the province, potentially paving the way for future development of casinos.

Also this month the government announced plans to establish a free trade zone on the island by 2020, with the goal of encouraging multinational companies to set up their headquarters in Hainan.

HNA Selling Spree

Should HNA have anything left by 2020, the economic opening up in Hainan could boost the value of many of the assets of the troubled group, as it is struggling to pay off debts accumulated via a $40 billion global acquisition spree over the past two years.

In March, HNA disposed of a pair of logistics projects in Hainan to mainland developer Sunac for RMB 1.9 billion ($300 million). The deal came after HNA’s plot sales in Hong Kong. The Hainan conglomerate sold three residential land plots in the city’s former airport site in Kai Tak to Wheelock and Company for HK$6.36 billion ($811 million), and Henderson Land Development for HK$16 billion ($2 billion) in March and February respectively.

The debt-ridden company is also said to be marketing nine properties including office buildings and hotels in Beijing and Shanghai for $2.2 billion. The properties include the 60-storey Shanghai HNA Tower on Lujiazui’s Puming Road, the Renaissance Shanghai Pudong Hotel.

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