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Warburg Plans Property Binge
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US-based private equity fund Warburg Pincus plans to pour US$400 million into the mainland property market over the next four years, reflecting confidence in the sector's long-term prospects.


One of the oldest and largest private equity funds in the world, Warburg Pincus has about US$10 billion under management.


It earlier said that it planned to invest half of its US$1.2 billion global property fund in Asia.


Chinese property company stocks have surged in recent months, with interest on renminbi assets outpacing the impact of government tightening measures.


Warburg Pincus Asia LLC Managing Director Philip Mintz told China Daily the fund is interested in medium-sized players with a focus on medium- and upper-class residential projects.


For example: "Greentown China is the type of developer we are looking for," he said. "The units the developer sells are priced at 7,500 yuan (US$937.5) per square metre, with an average size of 100 square metres."


The thriving economy and increasing spending power means there will be a strong demand for medium-sized flats, he added.


Greentown China is a Hong Kong-listed property firm headquartered in Hangzhou, capital of East China's Zhejiang Province. It has developed more than 2.0 million square metres of properties since 1995.


Mintz said a reasonable land bank will be one of the key consideration for Warburg Pincus's investment in China "5 to 10 million square metres of land bank or whatever is sufficient to cover development for the next three or four years."


Greentown China has one of the largest land banks among mainland developers, with some 8.6 million square metres of gross floor area under development at more than 80 projects, mainly in Shanghai and Hangzhou.


But Warburg Pincus will not limit itself to China's most crowded property markets. "Second-tier cities such as Shenyang and Changsha will be at the top of our list," said Mintz. Shenyang and Changsha are the provincial capitals of Northeast China's Liaoning and Central China's Hunan provinces respectively.


Mintz revealed that there are several deals under discussion at the moment, adding that he hopes two or three of them can be finalized by 2007. The size of investment will not be capped.


Warburg Pincus already holds shares in Chinese property companies Guangzhou R&F, Greentown China, Sunshine 100 and Olive City.


It also recently acquired shares in Shenzhen-based budget hotel chain 7 Days Inn. Warburg Pincus invested US$20 million in the company, which has 10 hotels in Beijing, Shenzhen and Hubei Province's capital of Wuhan.


Talking about the rate of return, Mintz said there is no specific benchmark for the investments. "The global standard is about 20 percent, but we don't set a hard target for it," he said.


The company normally holds its stakes for at least six months and ignores the share price fluctuation. "We hope to collaborate with the company's management to add value to the company in the long term," Mintz said.


"The injection into Greentown China has brought us a more than 100 percent return so far, but we have no intention of pulling out or slashing our holdings."


As for stakes of Guangzhou R&F, which Warburg Pingus sold in three batches this year, Mintz agreed that now is a better time to unload with the stock price lingering around HK$15.


(China Daily December 22, 2006)


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