- Mar 02, 2016
- China New Town Joins Industrial International Trust and CDB Development Fund to Establish RMB5 billion Fund
(Hong Kong and Singapore, 2 March 2016) China New Town Development Company Limited (the “Company” or “CNTD”; HKSE: 1278.HK; SGX: D4N.SI) is pleased to announce that its wholly-owned subsidiary has entered into an agreement today with CIB Wealth Management Co., Ltd. (CIB Wealth) and CDB Fund for the establishment of CDB New Town New-type Urbanization Development Fund (Limited Partnership) (CDB New Town Fund). The RMB5 billion CDB New Town Fund is to be invested in urbanization-related projects over an investment period of 8 years. The transaction is still pending agreement by the independent shareholders.
According to Mr. Jimmy Pun, Deputy General Manager of CNTD, “The business model of CNTD has evolved; from the past when the company rely on land sale proceeds sharing. We are now gradually moving from primary land development to an investment-driven approach, which is further extended to investment management in the field. We are proud of CNTD’s entering a brand-new stage of investment management after one year’s of solid progress in terms of securing quality projects.”
The establishment of this RMB5 billion fund underscores the Company’s ongoing commitment to urbanization projects. The “National Plan on New Urbanization (2014-2020)” has specifically set the targeted national urbanization rate at 60% by 2020. As the shareholder of the Company, China Development Bank (CDB) has made RMB729 billion of loans to support nationwide urbanization-related projects in the first half of 2015, some 68% of national loan amount during the same period. The Company will grasp the opportunities granted by the booming urbanization by further focus in this area.
The CDB New Town Fund takes the form of a limited partnership. According to its profit sharing mechanism, the limited partnership has 3 tiers. CIB Wealth, the subsidiary of Industrial Bank, is the senior-tranche limited partner accounting for 75% of the total capital. CDB Fund, the controlling shareholder of the Company, will be the middle-tranche limited partner accounting for 4% of the total capital. As the junior-tranche limited partner, CDB New Town (Beijing) Asset Management Co. Ltd, a wholly-owned subsidiary of the company, accounts for 20.98% of the total capital.
Sheng Qi Investment Fund Management Company Limited (Sheng Qi IFM), the Company’s newly established wholly-owned subsidiary, accounts for 0.02% of the total capital, and is responsible for the management and operation of the CDB New Town Fund. The first 4 years of the 8-year investment period are the “deployment period”, during which investments will be undertaken, while the last 4 years will be the “exit period”.
The forming of the CDB New Town Fund serves as a one-stop financing solution for the Company. The Company’s 21% capital contribution is a 5-times leverage ratio, which could substantially enhance the investment return. The company also undertakes that the selection of investment partners and potential projects follows strict selection criteria with each project protected by sufficient collateral. With the assurance of investment quality, CNTD is expected to realize a high investment return with well managed risk exposure.
The project gains realized from the development fund will first be distributed to the senior-tranche limited partner and intermediate-tranche limited partner, with a required rate of return pegged to the relevant PBOC benchmark rate for loans of tenor over 5 years (currently 4.90% per annum) plus 1.65% per annum and a fixed rate of 11.6% per annum respectively. The rest of the investment returns will be distributed to the general partner and junior-tranche limited partner, in proportion to their capital contribution. This structure enables the Company to enjoy a higher rate of return with limited capital contribution. With reference to the 10 investment projects under CDB (Beijing)-BOCOMM New-Type Urbanization Development Fund launched last year, the expected annual rate of return is expected to exceed 30% on average.
Not less than 90% of the capital will be invested in fixed-income investments. The remaining capital, subject to an upper limit of 10% of the entire capital invested, will be invested in pure equity type investments. The investment focus will be primarily on projects located in national economic zones, namely, the “Beijing-Tianjin-Hebei Zone”, the Yangtze River Delta, the Pearl River Delta, leading economic zones centered around provincial capital cities, and cities and counties among the top rankings of GDP and fiscal position by the National Statistics Bureau and/or similar authorities.
The setting up of this large-scale investment fund fully reflects the financing capability of the China Development Bank system, as well as the Company’s strategic focus on large-scale investment opportunities and accelerated growth. Through this leverage, the Company can accelerate project development, expand the market share and capture the extensive downstream opportunities during the process of managing the investment.
The investment focuses on three major areas: 1) old town reformation and shanty town reformation; and primary land development; 2) the provision of municipal facilities with exclusive rights in the operation or management of water, waste treatment, alternative energies and public utilities resources or services; and 3) land integration and property development in the heart of first- and second-tier cities. Clearly, the investment direction of the CDB New Town Fund paves the way for downstream livelihood related investment opportunities in addition to its core projects in urbanization and shanty town reformation. This will prove crucial for ensuring a rapid growth and sustainable profit for the company.