WeWork is selling control of its China operations in a deal that further reduces the group’s global footprint after disruption from the coronavirus pandemic compounded its financial woes.
Private equity firm Trustbridge Partners, an existing shareholder, is paying $200m to take majority ownership of the venture, which has a presence in 12 Chinese cities. WeWork will retain a minority stake.
The move is another sign of retrenchment for the global property company, known for buying or leasing prominent buildings in New York and London, after its planned initial public offering failed last year and ushered in a round of cost-cutting.
The lossmaking company has subsequently been hit hard by the coronavirus pandemic, burning through $671m in the second quarter, and has significantly slowed its expansion this year.
Last month, it emerged that SoftBank, which has already ploughed billions of dollars into WeWork, was lending the company an additional $1.1bn in senior secured debt to help address coronavirus-related disruptions.
Feng Ge, managing partner at Trustbridge Partners, said the company “firmly believes the demand that WeWork provides will only continue to increase”, and pointed to the “growing need for flexibility accelerated by the pandemic”.
WeWork’s China business was valued at $5bn in a 2018 funding round, which drew investment from Temasek, the Singaporean sovereign wealth fund, in addition to SoftBank and its Saudi-backed Vision Fund. The China unit was seen as a growth area for the company, attracting prominent Chinese tech firms as tenants, such as Alibaba and Tencent.
WeWork will continue to receive an annual licence fee linked to revenue in exchange for continued use of its brand and services. The company will also maintain a board seat.
In April, SoftBank pulled out of a planned $3bn purchase of WeWork stock, triggering legal action from the company, which refers to the China venture. The lawsuit WeWork brought against the Japanese group alleges that the latter began talking to Trustbridge as early as November 2019 about an alternative to the plan for the joint venture on which its $3bn tender offer depended.
WeWork’s model is usually based on leasing out buildings from landlords, renovating them and then renting them out to tenants — from freelancers to large companies.
WeWork China also appointed Michael Jiang of Trustbridge Partners as chief executive. Mr Jiang previously worked as vice-president of Meituan-Dianping, a Chinese ecommerce platform.