Investors flock to CRC’s debut RMB fund

The malaise doesn't appear to have reached China Resources Capital (CRC) - its debut local currency fund was more than two times oversubscribed within a fortnight of launch, closing at RMB956 million ($153 million). CRC's previous funds have all been US dollar-denominated vehicles raised through its subsidiary, Harvest Capital, which will serve as GP and fund manager with China Resources SZITIC Trust.

"China is the world's second-largest economy but it is in short supply in terms of efficient financing, with companies over-reliant on banks," Derek Cheng, managing director of CRC, tells AVCJ. "But things have begun to change. Chinese businesses are seeking direct equity financing like PE and there are a lot of emerging institutions and high net worth individuals willing to invest."

There are two reasons why CRC was able to buck the renminbi fundraising trend. First, it is a real estate-focused vehicle with only one asset, as opposed to a bundle of pre-IPO investments. Second, the asset is a prime residential project in Shanghai's Hongqiao district and the investment partner is China Vanke, the country's largest residential developer.

The Shanghai government wants to turn Hongqiao into Asia's largest transportation hub with a combination of airport, high-speed rail and urban mass transit connections capable of handling more than 52 million passengers per year by 2020.

The portion of land in which CRC has an interest is a 178,000 square-meter central business district at the heart of the Hongqiao development. CRC and Vanke identified the site together; then the developer acquired the land while the private equity firm raised capital for the co-investment.

It is not unusual for renminbi-denominated real estate funds to be raised for specific projects rather than for blind pools. However, the CRC vehicle differs from the norm in that it's a pure equity joint venture. In most cases, capital is raised on the basis of a buy-back guarantee from the developer - implicit if not legally mandated - so investors enter knowing they will get a return.

"There aren't many pure equity funds in the market for single projects where investors are taking genuine equity risk. It really depends on the quality of the project and the sponsor's background," says Christine Chan, director of investment and acquisitions at Harvest Capital.

Funds of both types are expected to proliferate as the Chinese government continues to impose restrictions on bank lending to property developers. "Due to these curbs, more and more developers are now pursuing alternative financing. We have seen this trend in the past few years and it is growing. It represents an opportunity for us."

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• Topics
• Fundraising
• Real estate
• Real estate
• Renminbi fund
• Greater China
• China
• Renminbi
• Fundraising
• Harvest Fund Management
• Real estate