Asia Property Firm Bets on Europe, Not China, to Boost Profits

(Bloomberg) -- Less than four years after its public offering as a play on China’s red-hot property market, Singapore’s First Sponsor Group Ltd. is banking on continental Europe to fuel earnings growth.

The company, which counts Hong Leong Group Singapore and Tai Tak Estates Sdn. among its shareholders, has 44 percent of its assets in Europe, mainly hotels and office buildings. It wants to expand in Germany, where it has a hotel, and is looking to buy assets in European markets such as Ireland and Austria, where Hong Leong doesn’t already have a presence via its Millennium & Copthorne Hotel subsidiary.

“We expect growth predominantly to come from Europe, but will continue to maintain a significant presence in the People’s Republic of China,” said Chief Executive Officer Neo Teck Pheng. He said First Sponsor generated 45 percent of last year’s profit from its European assets, with the remaining 55 percent coming from China.

First Sponsor listed in July 2014 with a view to expanding into property financing and property development in second-tier Chinese cities such as Dongguan and Chengdu. But as Chinese President Xi Jinping’s anti-graft drive intensified, the firm was unable to complete its projects, and its property financing unit endured a series of defaulted loans. Its shares continue to trade below the initial public offering price of S$1.50.

“We could not execute due to the political environment then,” Neo said, "Hence, we had to diversify out of China.”

The company made its first purchase in the Netherlands in February 2015, and now owns 30 properties in Europe worth about S$1 billion ($745 million). First Sponsor will watch for risks and opportunities arising from Brexit, it said in its annual report last year.

Entering the Dutch market while it was still in a "recovery phase" allowed the company to "buy good quality properties at a good price" and "build up a steady recurrent income base," Neo said, adding that the management team established in Amsterdam would now help the firm grow in the rest of the continent.

With a debt-to-equity ratio of 0.4 times, the firm’s balance sheet looks robust enough for such an expansion, said Joel Ng, an analyst at KGI Securities (Singapore) Pte.

"The investment in Europe was a good opportunity at an attractive price,” Ng said. They can use “their strong parentage Millennium & Copthorne to diversify beyond China and to ride on Europe’s economic recovery. The group’s hotels in the Netherlands may also benefit post-Brexit as more businesses move over," Ng said.

©2018 Bloomberg L.P.

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