Shin Kong Life Insurance Co (新光人壽), the main subsidiary and biggest profit source of Shin Kong Financial Holding Co (新光金控), announced yesterday that it has acquired an office building in London for ￡136 million (US$206 million) as part of the company’s efforts to elevate its long-term fixed income return and asset quality by revitalizing its commercial real-estate portfolio.
The insurer said the purchase was completed on Friday last week, when it also sold off its A8 commercial building in Taipei’s Xinyi District (信義) to Fubon Life Insurance Co (富邦人壽) in a NT$27.034 billion (US$817.6 million) deal.
The building houses a branch of the Shin Kong Mitsukoshi Department Store (新光三越百貨) chain and its sale is expected to yield NT$7.8 billion in gains for the insurer, which has been beset by larger-than-expected losses this year.
The two transactions represent a seamless transition of the company’s capital as it disposed of matured commercial real-estate property that has met its designated investment goals and redirected the proceeds to another viable alternative, Shin Kong Life said in a statement.
Located in the City of London financial district, Shin Kong Life’s new building, 40 Gracechurch Street, is expected to yield NT$300 million in rental proceeds each year, generating more than 4 percent in investment returns in the company’s first overseas purchase, Shin Kong Financial chairman Eugene Wu (吳東進) said in the statement.
In addition, Shin Kong Financial said that its board also approved a plan to purchase real estate in Tokyo via a special purpose vehicle arrangement — where a legal entity such as a limited company is created to fulfill specific objectives without putting the parent company at risk.
Given Japan’s persistently low interest rates, which range between 0.8 and 1 percent, the low cost of financing is expected to boost real-estate investment returns in the country to more than 7 percent, compared with 4 percent in other major markets, pending the approval of Japanese regulators, Shin Kong Financial said.
By purchasing real estate in Japan, the company would improve its risk diversification, as well as its capital utilization, it said.
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