InfraRed NF exits two mezzanine loan projects in China with a value of c. US$100m
|Category||Asian Real Estate /|
InfraRed NF China Real Estate Fund II (the “Fund”) is pleased to confirm that it has exited two mezzanine loan projects in China.
Project Leaf is a US$46m mezzanine loan to a mixed use development project in Foshan, Greater Guangzhou. The security for the loan comprised a sizeable mixed use development project of approximately 10 million square feet incorporating residential, serviced apartments, offices, two shopping centres and a sports stadium.
The US$ denominated loan was drawn in May 2014 and structured as a funded participation in an underlying RMB denominated loan between Nan Fung and the Chinese developer borrower at a 18% per annum interest rate. Nan Fung’s underlying loan was provided as part of a RMB 2.5 billion financing to assist the local developer acquire the site and commence development works.
The loan was exited early at a price based on a 12% p.a. interest rate in local currency due to concerns about the risk of currency depreciation and the borrower’s ability to remit money offshore given the tightening of capital controls. A mechanism has been agreed such that if the pro rata recovery on the underlying loan exceeds the amounts received, within an agreed time frame, then a further payment will be received.
To date the Fund’s strategy has focused on mezzanine investments where the market environment has been particularly attractive. This disposal marks the 1st exit for the Fund and the 10th exit for the platform in mainland China.
Project Billion is a US$50m mezzanine loan to a Singapore listed Chinese developer.
The main collateral for the loan comprised a mature mid-tier residential development project in Foshan, Greater Guangzhou. The loan, first drawn in September 2014, paid an interest rate of 15% per annum plus a share of sales revenues in the underlying project. The loan was structured with share charges over corporate entities owning the pledged assets with further protection from personal and corporate guarantees. Risk was mitigated by taking operational control over key bank accounts and by taking custody of company chops (which are required in China to perform a corporate action).
The loan achieved a return in excess of the Fund’s target returns and above the original business plan.
To date the Fund’s strategy has focused on mezzanine investments where the market environment has been particularly attractive. This disposal marks the 2nd exit for the Fund and the 11th exit for the platform in mainland China.