By WU Bo

Investors ran for cover as Soho China shares tumbled and fell on September 13 after Blackstone pulled from a US$3-billion (19 billion yuan) takeover plan. A joint statement issued last Friday said the deal would not receive antitrust approval within the agreed timeframe. Soho China was down nearly 40 percent on Monday and continued to fall on Tuesday. By press time, its price sank to HK$2.2.

Blackstone had agreed to acquire a controlling stake in Soho China at HK$5 a share, valuing the real estate developer HK$23.6 billion (US$3 billion). Soho China would have remained listed on the Hong Kong Stock Exchange, and existing controlling shareholders would retain a 9-percent stake.

Soho China has been trying to sell itself since last year and has failed once before. Blackstone was reported to be in talks with Soho in March 2020 but pulled out citing pandemic concerns. With the second bid in ruins, the future of the real estate developer is anything but clear.

Overseas investors like Blackstone are facing increased antitrust scrutinization, and domestic buyers are also wary. Nevertheless, PAN Shiyi and ZHANG Xin, the married couple who founded Soho, will continue with their efforts to take the company private.

Before Blackstone, Hillhouse Capital was rumored to be interested, something the fund immediately and vehemently denied. A takeover by a domestic company is also unlikely. Office buildings are expensive and the buyer needs to pay a lot upfront. For the same reason, Pan and Zhang may not have the resources to take the company private themselves.

Soho China's best years were in the 2000s, as its high-end retail and office buildings began to dominate the skylines of Beijing and Shanghai. It was hit hard by the 2008 recession, and in 2012, the company revamped its strategy from selling to leasing. But profits continued to drop.

Then it started selling again. From 2014 to 2017, Soho China sold over 28 billion yuan of property. Most of the buildings were divided up in square footage and repackaged with parts of other properties. The company readjusted its strategy in 2019 and most sales have been for entire buildings since then.

Analysts believe that Soho will continue to sell if it fails to find a buyer. It might be easier and more profitable to sell entire buildings. Soho has made some money doing just that in the past couple of years. The properties are less valuable cut up and repackaged, but that might be the only way forward.

The office leasing market is recovering as the pandemic wanes. Soho’s eight sites in central Beijing and Shanghai are at least 75-percent occupied, some more than 90 percent. This will be reassuring to buyers, analysts said.