Primed to take on big boys in China

Straits Times: Mon, Apr 23

ARMED with a sizeable war chest and backed up by one of the region's wealthiest men, property veteran Pua Seck Guan now wants to play with the big boys in the Chinese property market. About 70 per cent of his new real estate investment vehicle's funds will be invested in China, with the other 30 per cent to be focused on Singapore, Mr Pua, 48, told The Straits Times. Perennial Real Estate Holdings, as the firm is called, has a target capital size of $500 million. The firm, which counts Wilmar chief executive and chairman Kuok Khoon Hong among its key investors, will target mixed-use projects near transport links in 'good second-tier cities and potentially some first-tier cities'. Each project is likely to cost a few hundred million dollars. The developments are likely to have office or retail space as the major component and those with residential units will be considered, but with some caution. Mr Pua, who left CapitaLand to set up his own firm in November 2009, declined to reveal what types of projects he will be looking at here, only stating that any project has to be something that 'creates value'. The firm's rate of return is expected to be more than 15 per cent for projects in China, while those in Singapore are expected to get returns of 12 per cent to 15 per cent. The company is already primed for the big league. Its investor base is impressive, led by Mr Kuok, 62. The palm oil tycoon is the nephew of 'sugar king' Robert Kuok. Forbes magazine estimates that his net worth was $3.5 billion last year. About $400 million of the new firm's capital is cash that it can spend. Mr Pua notes that this gives it 'firepower and, with leverage, we can do a fair bit'. He also dismisses concerns that China might face a hard landing, but noted that the softening market and tighter capital controls provide opportunities to acquire projects at 'attractive prices that would not be available in a very good market'. 'Why would I bother whether the market goes down 10 or 20 per cent? That is irrelevant to me. You worry only if you are buying at market prices, but we are buying our projects at very attractive prices,' he added in an interview last Friday. He has had much experience roping in big-time investors to back his plans. Osim International founder Ron Sim joined in when Mr Pua acquired Chijmes. His other projects here include Chinatown Point and the historic Capitol site. But he is not overstretched, the former chief executive of CapitaLand Retail said, pointing out that he used to do a lot more. His staff strength mirrors the rapid expansion of his business - Perennial Real Estate has grown from six staff members at the start to more than 50 now. This time, he has set his sights farther afield, and in Mr Kuok, he seems to have found the ideal partner. He said he first met Mr Kuok about two years ago at a casual dinner with a mutual friend. They met again in a meeting set up by bankers last June to discuss business opportunities and both found they were bullish on China. 'I shared with him what we are doing and he understands the market. He knows that commercial properties (in China) are very underpriced, mainly because few people know how to and want to do it,' added Mr Pua. Mr Kuok has built up many contacts and relationships with government officials and business partners in China over the years, which can be tapped in areas like obtaining planning approvals or financing, Mr Pua said. 'I pride myself in knowing how to do business in China, but he is a real master. He likes China and he enjoys dealing with the Chinese and very importantly... knows how to leverage on their strengths,' he added. Both businessmen meet every few weeks but Mr Pua said that the relationship is a long-term partnership based on trust. 'He leaves it to me as to which project I want to pursue... I asked him if he wanted to second some of his people to me since he is investing a large sum of money, but he said no,' he added. Mr Kuok will hold a 49.5 per cent stake in the joint venture vehicle while Mr Pua will take 20 per cent. The rest will be held by other investors. The joint venture vehicle will take a 49 per cent interest in Mr Pua's company, Perennial Real Estate, while Mr Pua will keep 51 per cent. Perennial Real Estate also has a 78 per cent interest in the trustee manager of mainboard-listed Perennial China Retail Trust (PCRT), a business trust holding shopping malls in China. Mr Pua, who is executive chairman of Perennial Real Estate, said the deal also benefits the unit holders of PCRT as the newly established firm can also embark on joint ventures with the trust or pass a pipeline of malls to it. [e-mail] MAKING GOOD BUSINESS SENSE 'I shared with him what we are doing and he understands the market. He knows that commercial properties (in China) are very underpriced, mainly because few people know how to and want to do it.' Mr Pua Seck Guan, on how he and Mr Kuok Khoon Hong were both bullish on China Source: The Straits Times