Vanke cashing out as commercial yields stay low

China Vanke Co, the nation's biggest developer by sales, said it agreed to form a venture with the Carlyle Group LP.

The venture will buy nine of Vanke's commercial properties.

Carlyle Asia Investment Advisors Ltd will hold 80 percent of the asset platform company, with Vanke holding the balance, according to a filing with the stock exchange of Hong Kong on Thursday. Vanke said the two companies will also set up a commercial property management company.

Vanke has said it is seeking smaller equity stakes in property projects as the company moves to divest assets and focus on operations to bolster shareholder returns and market share while reducing reliance on equity financing.

Stake sales in commercial properties contributed to a 238 percent year-on-year jump in first-half investment gains, Vanke has said.

"It is pretty obvious that Vanke wants to get rid of its burden and cash out because rental yields on China's commercial properties are so low by international standards," Edison Bian, a Hong Kong-based property analyst at UOB Kay Hian Ltd, said in a phone interview before the announcement.

"Plus by bringing in Carlyle, Vanke could learn a lot from their management style."

The venture will hold commercial properties "over a long period of time" until eventual asset securitization, Vanke said on Thursday.

Vanke said the preliminary agreement is not legally binding and the plan may or may not proceed. It did not give financial details.

Carlyle, a United States-based private equity firm, is in advanced talks with Vanke to buy stakes in nine of its shopping malls, Reuters reported on Wednesday, citing two unidentified people with direct knowledge of the matter.

One person said the deal was valued between 6 billion yuan ($977 million) and 7 billion yuan, while the other said it could be worth as much as 10 billion yuan, according to the report.

The report was "partly true," Vanke said in an earlier statement.

The company has not disclosed details of the properties that it plans to sell.