The Mandarin Oriental International has scraped its planned sale of Hong Kong hotel, The Excelsior, putting a dampener on a record-breaking run of property deals in the financial hub.
The luxury hotelier, part of conglomerate Jardine Matheson, said bids for the four-star hotel had either not met its expectations or did not meet with its transaction requirements, according to a statement on Wednesday.
Beijing’s efforts to curb capital outflows by clamping down on cross-border deals nixed the deal, according to a person familiar with the matter.
Mainland Chinese property developers either struggled to convince Jardines that they could move the money offshore in a timely fashion or that their bids would receive necessary regulatory approvals, the person said.
China's National Development and Reform Commission formalised its restrictions on outbound investments in August across a range of sectors including: real estate, hotels, entertainment and sports.
Some of China’s most aggressive overseas buyers have bought hotels in recent years, much to the consternation of Beijing. Take HNA Group which bought into hotel operator Hilton Worldwide. Anbang Insurance attracted global attention with its $1.95 billion purchase of the Waldorf Astoria New York hotel in October 2014.
Nowadays, China’s dealmakers have to seek "approval" for their purchases, rather than merely "registering" them, a person familiar with the process has told FinanceAsia. And that nod is very hard to come by if the deal is in Beijing’s restricted list of sectors.
Anti-climax
The Mandarin Oriental, listed in London, Bermuda and Singapore, said on June 5 that as part of a review of its long-term strategic options for The Excelsior it was to test market interest in the possible sale of the property.
The prospective sale generated a buzz in the financial hub as the site was the first property bought from Britain after the territory became a colony in 1841. Dubbed Hong Kong’s Lot No. 1, it has been in the hands of the colonial-era trading house, or Hong, ever since.
The fact the conservative trading company, founded in 1832 and controlled by the Keswick family, was willing to finally part with the site epitomised the M&A frenzy in Hong Kong’s property market.
The territory's family-run conglomerates have been cashing in on a three-fold rise in the value of Hong Kong property since 2007, as measured by the Hong Kong Rating and Valuation Department.
The windfall has given the tycoons scope to pay out bumper dividends, spin off properties into separate listings, sell non-core or lower-quality assets and recycle the proceeds into higher-class buildings or cash-generating overseas assets.
Henderson Land has been selling non-core assets and in May bought a commercial site in downtown Murray Road, Hong Kong for HK$23.3 billion ($3 billion), a world record price.
On September 15 the Mandarin Oriental ratcheted expectations higher when it said it had received proposals from potential purchasers to acquire the property.
The hotelier's shares fell S$0.78 to S$2.01 in Singapore on Wednesday after it said the sale had been shelved.
The Mandarin Oriental said that it would continue to review all options, including the redevelopment of the property into a commercial building.
Bad omen?
The aborted deal may dampen demand for other upcoming property deals in Hong Kong.
Elsewhere, Champion Real Estate Investment, which is controlled by the Lo family’s Great Eagle Holdings, appointed Savills on July 4 to sell a non-core asset, the Langham Place commercial tower in Kowloon.
The Woo-family’s Wharf Holdings, an affiliate of Wheelock and Co., proposed in August a HK$230 billion ($29.4 billion) spin off of six Hong Kong properties, including the landmark Times Square shopping mall and office complex, into a separate listing from its largely commercial properties in mainland China.
To be sure, hotels are a distinct segment of the property market and need buyers with deep pockets to cover the relatively high operational costs. In this case, the person familiar with the deal said, Hong Kong developer Sun Hung Kai Properties did place a bid, but it fell short of price expectations.
There had been speculation SHKP would redevelop the hotel in tandem with the adjacent World Trade Centre office and shopping complex, which it also owns.
For Jardines as a whole, the hotel would have been a nice windfall, but was hardly a must-have.
The conglomerate is a large, diverse mix of prudently managed and well-established operating companies across Asia. Since 2011, the group has generated average annual adjusted funds from operations of about $5 billion.
With the mature Hong Kong market offering limited potential for organic growth, Jardines has been focused on expanding in other Southeast Asian countries.
During the five years ended 2016, Southeast Asia generated about 47% of the group's underlying profit.
