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US private equity firm Warburg to set up US$5 billion distressed property manager in China

  • Firm will work with Chinese special situation asset manager Wensheng to create a joint venture
  • China’s real estate special situations sector is entering an accelerated growth trajectory, Warburg executive says

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Residential buildings under construction in the new city area of Yumen, Gansu province. Warburg is tapping into a growing sector of distressed asset investment as more Chinese property companies feel the strain from tighter liquidity and policy curbs. Photo: Bloomberg
BloombergandPearl Liu

Warburg Pincus is creating a Chinese asset management company to invest in distressed real estate opportunities, with plans to garner US$5 billion in assets in five years.

The US private equity firm will work with Wensheng, one of the largest special situation asset managers in China, to create Wensheng Special Situations Asset Management, a joint venture focusing on real estate special situation investments, including distressed assets. The two will commit as much as US$600 million, according to a joint statement on Monday.

Warburg is tapping into a growing sector of distressed asset investment as more Chinese property companies feel the strain from tighter liquidity and policy curbs. High debt levels and a government deleveraging drive are pushing more developers to sell assets.

“In light of the ongoing financial reform in China and the continued regulatory development, the real estate special situations sector is entering an accelerated growth trajectory,” Zhang Qiqi, Warburg’s managing director, said in the statement.

Warburg joins foreign companies such as Blackstone Group and Brookfield Asset Management in hunting for opportunities in China’s distressed real estate sector. Blackstone, for example, revived its pursuit of Soho China with a HK$23.7 billion (US$3 billion) offer for the Chinese office developer, last month. At HK$5 a share, Blackstone will be buying Soho on the cheap, at about a 40 per cent discount on the group’s audited consolidated net asset value of HK$8.37 per share at the end of last year.

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40 years of opening up and reform: How property became a driving force in the economy

40 years of opening up and reform: How property became a driving force in the economy

Beijing is trying to maintain its grip over China’s debt-fuelled property sector. It wants to cool the sector and guard against systemic risks in the financial system stemming from excessive real estate lending and speculative buying, especially at a time when economic growth in China faces uncertainties arising from the coronavirus pandemic, despite four straight quarters of growth since the second quarter of last year.

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