Evergrande Won’t Deter Investcorp From Expansion Into China

·3 min read
Evergrande Won’t Deter Investcorp From Expansion Into China

(Bloomberg) -- Investcorp Holdings BSC, one of the largest foreign buyers of U.S. real estate, remains bullish on the world’s biggest economy and expects the crisis enveloping China Evergrande Group to offer fresh opportunities for the private equity and alternative asset manager as it seeks to expand in Asia.

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The top executive at the Bahrain-based firm described the problems at the Chinese developer as temporary and likely to be contained within Asia, and said the situation could even have “a calming effect on the prices of real estate that are really ballooning in parts of China.”

Investcorp, which already has an office in Beijing and launched a health-care investment platform last year, plans to keep its focus in China on the technology, health-care and food sectors, according to Executive Chairman Mohammed Alardhi.

“We’re there for the opportunities, we’re there for the long term,” he said in an interview with Bloomberg Television on Sunday.

Global financial markets are bracing for a potential collapse of Evergrande, which is buckling under more than $300 billion in liabilities. The company is China’s largest issuer of high-yield dollar-denominated bonds, and bills are coming due to an array of banks and suppliers.

Evergrande’s stock and bonds have tumbled in recent months on concern that the massive debt pile will lead to one of the largest restructurings ever in China. Investcorp has no “direct investment” in China’s real estate, Alardhi said.

Not Lehman

“It’s not a Lehman moment for sure for China,” he said. “The Chinese government has a lot of tools to deal with this if they decided to do that.”

The money manager is pursuing a plan of expanding in Asia, where its assets under management increased by 17% to $1.1 billion for the financial year ending June 30. It made a total of 11 new private equity investments during the year across India, China and southeast Asia.

Investcorp has for more than two decades invested billions of dollars -- mostly from wealthy Gulf families and sovereign funds -- into U.S. property. It has a New York office and currently oversees a real estate portfolio worth $7.4 billion, including leverage, in the U.S. and Europe, according to its website.

“We’re very bullish on the U.S. economy, we know all that’s happening in the world may dampen growth but we see good growth coming,” Alardhi said.

Property Focus

Investcorp will continue to target sectors such as multi-family residences and industry-related realty, industries Alardhi described as resilient to crises and that earned its investors an 18% internal rate of return in the last 10 years.

In multi-family and industrial properties, “we still see strong fundamentals and lot of capital going into them,” Alardhi said. “Good growth of rent, good occupancy, resilient during Covid and we continue to do more of that,” he said, adding there’s need for more warehouses not just in big but also smaller cities.

Investcorp, which has delisted from the Bahrain stock exchange after almost four decades, now has the agility it needs to expand by going back into private ownership, Alardhi said. Abu Dhabi sovereign fund Mubadala Investment Co. in 2017 acquired a 20% stake in Investcorp, which has backed companies including Tiffany & Co. and Gucci Ltd.

The money manager can amass $100 billion in about seven years, Alardhi said. It currently manages nearly $40 billion, he said.

“Acquisitions, organic growth, joint ventures are things that we have done and we will continue to do,” Alardhi said.

“The structure of going private is the right thing for us to do now as we prepare the company for the next stage of its growth,” he said. “For many years we have served the retail investors in a deal-by-deal model. We would like to change that so we target sustainable capital, institutional capital.”

(Updates with Alardhi’s comment in penultimate paragraph.)

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