Agricultural Bank of China (ABC) has bought an office building in Hong Kong’s prime business district for HK$4.9 billion ($629 million) as the lender continues to flex its muscles outside China.
ABC will use the 28-storey building in Central as its Hong Kong headquarters and is the first of China’s big four banks to have direct 100% ownership of its office building in Hong Kong. China Construction Bank (CCB) has invested HK$1. 8 billion, alongside Hong Kong developer Lai Sun Development, for a 50% share of the former Ritz-Carton hotel plot.
Bank of China Tower, one of the most recognisable skyscrapers in the city, houses the lender’s Hong Kong operation, which is a locally incorporated bank. ICBC is still renting its offices in Hong Kong.
ABC bought the building from Apollo Global Real Estate, an asset management firm, and National Electronics’ investment unit. The property sits at 50 Connaught Road Central and covers a site area of about 11,500 square feet. It was completed less than a year ago.
“Mainland companies often come to buy one floor or two, but to buy out an entire building like this is not very common,” said Antonio Wu, deputy managing director of Colliers International, a property consultant that advised ABC on its purchase.
“Whereas Western companies rent their office space, Chinese companies prefer to own their offices,” he said.
ABC’s purchase comes at a time when foreign banks are moving out of Central, where office rents are among the most expensive in the world. In the residential market, mainland buyers of apartments in Hong Kong have triggered a great deal of public anger as the additional demand has made homes more expensive. But Hong Kong is a free economy and cash-rich mainland companies and individuals have to find somewhere to put their money.
ABC made Rmb121.9 billion ($19.32 billion) net profit in 2011, 29% more than the previous year, thanks to strong fee and commission income. All China’s listed banks reported an increase in net profit of 25% to 30% during 2011, but that didn’t stop their Shanghai-listed shares from falling substantially.
Analysts expect Chinese banks’ earnings to fall in 2012 due to slowing economic growth and weak credit demand. Standard & Poor’s has also warned that falling property prices and the challenges of refinancing local government debt will erode banks’ income. The rating agency has estimated that as much as 30% of loans to local governments could go sour and will probably become the biggest source of non-performing assets for China’s banks.