Banyan Tree forms JV with China Vanke

Banyan Tree Huangshan (Banyan Tree Huangshan)

As slowing economic growth leads wealthy Chinese to cut their spending, Singapore-based resort operator Banyan Tree Holdings is forming a strategic partnership with real estate company China Vanke, in an effort to boost its game in the country's luxury hotel market.

The new JV, Banyan Tree China, will consolidate the ownership of the Banyan Tree-branded hotels and assets in China. In a statement, Banyan Tree said that it estimated the amount of initial paid-up capital of BTC to be no more than RMB2,000 million. BTC will also be the development and management platform for new projects by both parties in hospitality, senior-living and wellness.

BTC will initially be controlled 50:50 by Banyan Tree and Vanke through the addition of all of Banyan Tree's China-owned assets into BTC at valuation, which is to be confirmed by an independent valuation methodology. The current book value of these assets (before valuation) is approximately RMB720 million. 

The proposed deal would have BTC own 40 percent of Banyan Tree's hotel management company in China as it continues to drive expansion of Banyan's Angsana, Cassia, and Dhawa brands. China currently has 10 Banyan Tree hotels and four Angsana-branded properties. The Banyan Tree Jiuzhaigou is due to open in March.

At its discretion, BTC will invite owners of the other 15+ existing hotels and 20+ hotels bearing various Banyan Tree brands under development in China to inject their hotels into BTC under mutual agreement. Vanke may also add hotels it owns as well as future hotels under development into BTC.

Vanke will also take up an approximately 5-percent equity stake in Banyan Tree itself. This echoes December's deal with AccorHotels, which saw the French company invest an initial $16.8-million Banyan Tree for a 5-percent stake in the company.

“We are excited to partner with Vanke, one of the largest real estate developers in China," Ho Kwon Ping, executive chairman of Banyan Tree Holdings, said in a statement. "As China’s economy matures, domestic and outbound tourism is set to boom, and many property developers are venturing into hospitality and tourism.”

Using Vanke's expertise in hospitality and housing projects there, the two companies plan to collaborate on developing senior-living and wellness facilities in addition to hotels. 

This is the newest of Banyan Tree's partnerships with major foreign players in the hotel and real estate market. Last December, the Singaporean company announced a strategic partnership with France's AccorHotels, which will see the French player take around 5 percent in Banyan Tree.

The tie-up will also bring Banyan Tree some strong capital back-up for its business in China, which is struggling as the country's rich slow their luxury spending. An increasing number of other foreign players entering China's major travel destinations, such as Sanya and Lijiang, in recent years have intensified competition, forcing hotel operators to slash room rates, as Nikkei notes. Banyan Tree posted a S$27.5-million net loss for the financial year ending in December 2015 due to lower spending by luxury travelers from China and Russia.