HONG KONG (Reuters) - China Everbright Limited’s (0165.HK) real estate private equity arm plans to raise its first China-focused dollar fund in seven years to tap rising demand from foreign investors for assets in the world’s second largest economy, its top executive said.
EBA Investments plans to start the fund with around $1 billion to $2 billion to invest in a single project, Chen said. China Everbright Ltd’s parent company, state-owned China Everbright Group, is a financial conglomerate based in Beijing.
“Last time we closed a dollar fund was in 2010, but now we may start a new one,” EBA Chief Executive Eric Chen told Reuters in a phone interview. The firm currently manages around $6 billion of assets in China.
The latest Chinese national policy encouraging companies to raise money offshore and invest in the country - which shores up the domestic currency - will support the fundraising, he said.
Chen said when EBA raised the first dollar fund, foreign funds were generally negative about investment in China. But more recently, big international fund managers such as Blackstone Group (BX.N) and Warburg Pincus [WP.UL] have stepped up their investments, showing many investors believe in the China “value-added story”, he said.
The planned fund will initially invest into a single project because foreign investors prefer seeing the details and strategy of the specific projects before committing to invest, Chen said.
The investment arm still has 6 billion yuan ($883 million) to deploy from a fund raised last year in the local currency. Chen said it may raise a new 10 billion yuan fund in 2018.
Besides top-tier cities, EBA Investments is also looking for more shopping mall investment opportunities in so-called second-tier cities and third-tier cities near major metropolitan areas, such as Xian and the southern city of Shunde, as rent incomes go up while asset values stay low.
“The asset prices have dropped in the past few years due to fear of oversupply and competition from e-commerce, but we found out local consumption and operating environment are actually doing better than we originally expected,” Chen said.
“Our tenants’ business is good; children’s education, gym and recreational activities see strong demand and they cannot be replaced by e-commerce,” he said.
He added the firm usually exits shopping mall investments after five years by spinning off individual projects into securities such as real estate investment trusts (REITs), but costs could rise when market liquidity declines.
Additional reporting by Elzio Barreto; Editing by Muralikumar Anantharaman