Private property

Real estate firms in delisting moves. Why now?


Lau: selling his Evergrande stake

Hong Kong billionaire Joseph Lau first became linked to Evergrande founder Xu Jiayin when they became card buddies in the “Big Dee Club”, which included some of the city’s top tycoons.

Members of the club have backed the varied ventures of Xu (often referred to in the international media by his Cantonese name of Hui Ka-yan) over the years (see WiC364).

Now that Evergrande is on the verge of a major restructuring, Lau’s personal fortune has also taken a massive beating, however. In September his property firm Chinese Estates sold nearly 109 million shares of the Hong Kong-listed Evergrande on the open market (out of 860 million shares held) at a loss of almost HK$1.4 billion ($180 million). In a statement on the sale, the company said it could choose to sell its remaining shares in Evergrande – nearly 6% of the troubled developer – over the next 12 months, “depending on the prevailing market conditions”.

Assuming the remainder of the stake is sold, Lau would incur additional losses of more than Rmb10 billion, based on Evergrande’s share price before it was suspended from trading in early October.

As a result Chinese Estates’ share price had almost halved by mid-September, and Lau and his wife Chan Hoi Wan then announced last week that they plan to take the company private for HK$1.91 billion, offering HK$4 apiece for the 25% of shares held by minority shareholders.

The offer is a 38% premium over the closing price on September 29, when trading was suspended ahead of the announcement.

Chan, who serves as the company’s chief executive, explained the proposal as “an opportunity for minority shareholders to cash out” and to “transfer all the risks” to herself.

“There are many uncertainties including higher interest rates in the real estate and financial markets, making the company’s share price unpredictable,” she added. “This has posed high risks for investors.”

Critics queried whether her offer was a generous one, however. Some analysts questioned whether the move was – to use a Chinese proverb – “looting a burning house”, says Economic Digest, given that the bid represented a 69% discount to Chinese Estates’ net asset value.

It is not the first time the Lau family has tried to take the company private. In 1989 Lau offered HK$2.5 a share but shareholders rejected that deal, complaining the price was too low. Two years later the tycoon proposed to take the company private again this time via a share swap. But investors expressed strong opposition and the deal was later vetoed by Hong Kong’s Securities and Futures Commission.

Chinese Estates isn’t the only developer wanting to exit the Hong Kong bourse. On the last day of September, Beijing Capital Land officially departed the Hong Kong Stock Exchange after 18 years. The developer, which is part of state-owned Beijing Capital Group, has struggled to raise funds from the city’s stock market in recent years. Founded in 2002, it was the first Beijing-based property firm to list its H-shares in Hong Kong. But it has struggled to boost its share price. That prompted a number of efforts to return to the A-share market (albeit none of which came to fruition).

The last few years haven’t been easy for Beijing Capital Land: it has missed its sales targets for three consecutive years. In the first half of this year, it managed an operating profit of Rmb652 million ($101.25 million), a decrease of around 43% over the same period last year. Net profit attributable to shareholders dropped 73% year-on-year to Rmb226 million and the company’s gearing climbed from 78% at the end of 2020 to 81%, reflecting higher debt levels.

Industry insiders reckon that another major motivation for exiting the Hong Kong bourse could be that the company sees a fresh chance to sell its shares in the mainland market. In this instance, the new opportunity might come from the launch of a new stock exchange in Beijing (see WiC555), which will be looking for listing candidates.

“As Beijing’s own state-owned company, whether Beijing Capital Land will list its shares on the Beijing Stock Exchange, is something the market is paying close attention to,” Jiemian, a financial news portal, noted.

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