- Nov 03, 2014
- CNTD explores an integrated development model
(Hong Kong and Singapore, 3 November 2014) - China New Town Development Company Limited – the leading planner and developer of integrated new towns in China (the “Company”, “CNTD”, the “Group”; HKSE: 1278.HK; SGX: D4N.SI, its ultimate controlling entity is China Development Bank Capital Corporation Ltd. (“CDB Capital”)), is pleased to announce that the Company has on 3 November 2014, entered into the Cooperation Agreement (the “Agreement”) regarding the Yuhuatai District Tiexin Bridge (鐵心橋) - Xishan Bridge (西善橋) Regional Urban Re-development Project (the “Two Bridges Project”) and Software Valley South Park Development with the People’s Government of Nanjing Yuhuatai District (“Yuhuatai District Government”)，Yuhua District State-Owned Asset Operations (“Yuhuatai SOAO”) and CDB Capital. The signing parties agreed to devote concerted effort in promoting the development of the Two Bridges Project, to build a modern urbanization model facilitated by high-end industries, commercial and leisure, culture and tourism, as well as living functionalities.
Riding on the favorable national policy of urbanization, CNTD marches into Nanjing
China’s urbanization rate is substantially below the international standard of developed countries and has ample room for catch up. A new-type urbanization model tailor-made for China was advocated by the 18th National Congress of the Communist Party of China. The congress emphasized the importance of facilitating the development of large-to-mid sized cities, coordinating the development of small towns and integrating industry development into new towns. The enhancement of integrated carrying capacity of cities has been promoted to an unprecedented level. Adhering to the national policy on urbanization, the Company proactively invests into developments and constructions of new-type integrated new towns and is a leading enterprise in the industry.
In addition, the Company collaborates with the Yuhuatai District Government and Yuhuatai SOAO to develop Two Bridges Project and Software Valley Project. Two Bridges Project is located at the prime zone of Yuhuatai District. The district is currently under rejuvenation. Nanjing Municipal Government has just announced an ‘Notice of the Municipal Government about Maintaining Healthy Development on Property Market” (the “Notice”) which promotes the redevelopment of shanty towns. The Notice reflects that Nanjing Municipal Government attaches great importance to urbanization. Two Bridges Project is expected to enjoy full-fledged support from the government and favorable policies.
Stable income stream and upside potential from innovative revenue model
Pursuant to the Agreement, the Company has agreed to (through the Designated Entities) contribute additional capital of RMB490,000,000 to CDB Yuhua. Upon completion of the Capital Contribution, the registered capital of CDB Yuhua will increase to RMB1,000,000,000 and the Company will be interested in 49% of the equity interest in CDB Yuhua. CDB Yuhua is the sole authorised primary land development entity of the Two Bridges Project spanning over 21 sqkm. and shall have the preferential right to participate in the developments of other primary land projects within the planning area of the Yuhuatai District. To incentivize the Company’s contributions in terms of capital sourcing and execution, the Yuhuatai District Government has agreed to through Yuhuatai SOAO guarantee 17.1% pre-tax fixed investment income on the Company’s capital contribution to CDB Yuhua. In addition, the Yuhuatai District Government commits to support the development of the Company by utilising 50% of the district-retained portion of taxes paid by the Company’s subsidiaries incorporated in the Yuhuatai District in the form of fiscal subsidies or government-led public utilities construction.
In contrast to the existing three new town projects of the Company, Two Bridges Project adopts fixed investment income model on the part of primary development. Such an innovative revenue model of the group encompasses visible return profile, shorter cash cycle, tighter control over investment scope and clear exit timing. It is expected to provide stable cash flow for the group, which is crucial for group financial performance in turbulences of the property market. Furthermore, this help balance the risk-reward profiles of the existing three projects of the Group.
Leverage the primary development platform to explore secondary development market opportunities
The Company commits to send a team of experts with professional and recognised experience in township development and operations to CDB Yuhua to provide practical integrated execution solutions in the Two Bridges Project. Leveraging on CDB Capital’s China Urbanisation Strategic Alliance, the Company will bring in quality strategic partners along the entire urban development value chain, which is a showcase of its professional advantages in developing integrated new towns. With its professional competency and its profound understanding in the Project’s master planning, the Company will proactively explore secondary land development and other ancillary facility projects to enrich its income model, further driving the profit growth of the Company.
Pursuant to the Agreement, the Yuhuatai District Government shall establish a joint-venture controlled by the Company and procure the strategic acquisition of substantial amount of land for secondary land development. Such land parcels are expected to sustain at least 5 years of development. In addition, the Company will establish a joint venture under its control to manage the constructions and long-term operations of ancillary facilities such as intelligent systems, alternative energy systems, building relevant service interface and operating systems.
This opens up a unique opportunity for CNTD to secure substantial amount of land resources in the city center of Nanjing. As the market demand grows, the upside potential of the relevant land is tremendous and is expected to contribute promising returns to the Group.
The spokesman of CNTD comments, “Such integrated development model between township and property development is an evolution from existing projects. The Company possesses leading expertise in the industry and extensive experience in the development of integrated new towns. Primary development of the projects will ensure the Company’s in-depth knowledge of the project master planning. By seizing this favorable opportunity, the Company will actively explore other secondary infrastructure projects, which is expected to break through the company's original business model, widening income opportunities and improve the Group's single revenue model to better return the shareholder’s support. Nanjing municipal government recently announced the abolition of limited house purchasing order in Nanjing from 21 September 2014. China's central bank and the China Banking Regulatory Commission released a notice on 30 September 2014 that the standard of the first mortgage has been relaxed, and the down payment requirements has been cut. Relaxation of the restriction on house purchase and mortgage is expected to promote the development of the real estate market in the region, as well as the secondary development business of the Group.
Two Bridges Project was reached with the support of our parent group, CDB Capital and the government, signifying a milestone of the Group’s business
Primary land development is a capital intensive business and has high entry barriers for developers. The valuable resources of financing and township development of CDB Capital, the parent group of the Company, has laid a privileged foundation in the exploration of new projects of the Company and facilitated the launching of Two Bridges Project.