Lee Shau-Kee Pays $1.3 Billion to Boost Henderson Stake, Funding New Homes

Billionaire Lee Shau-kee’s HK$10 billion ($1.3 billion) investment in Henderson Land Development Co. may help finance the developer’s plan to convert farmland and old buildings in Hong Kong to as many as 45,000 homes.

Lee, 83, and his family exercised 172.4 million warrants into the same number of shares at HK$58 each, a 5.9 percent premium to the latest close, as it wouldn’t be easy to buy the bulk of stock in the market, Henderson said in a statement to the Hong Kong stock exchange late yesterday. Lee and his family have also bought 28.2 million shares since March 18, according to the statement.

Henderson plans to build as many as 45,000 residential units across the city to cope with demand driven by Chinese buyers, Lee said last June, without giving a timeframe. Hong Kong’s home prices have risen more than 65 percent since early 2009 on record low mortgage rates, a recovering economy and a lack of new supply.

“The funds will be used for developing their Hong Kong projects,” said Eva Lee, an analyst at Macquarie Securities Ltd., who has a “neutral” rating on the stock. The share sale has probably “eliminated investors’ concerns that he won’t exercise the warrants, but it won’t change our outlook on the company yet.”

Photographer: Timothy O'Rourke/Bloomberg

Lee Shau-kee, chairman of Henderson Land Development Co. Close

Lee Shau-kee, chairman of Henderson Land Development Co.

Photographer: Timothy O'Rourke/Bloomberg

Lee Shau-kee, chairman of Henderson Land Development Co.

The Hong Kong-based developer stands to raise as much as HK$24.9 billion when all 429 million warrants held by investors are converted to shares at the HK$58 price.

Boosting Stake

Lee’s stake in the company has risen to 59.2 percent from 56.2 percent after exercising the warrants, Bonnie Ngan, a spokeswoman for Henderson, said today.

Henderson’s shares rose as much as 4 percent in Hong Kong today before closing the day 2.7 percent higher at HK$56.25. The stock has advanced 6.1 percent this year, twice the 3 percent increase in the seven-member Hang Seng Property Index, of which the developer is a constituent. Henderson last closed above HK$58 on Nov. 17.

Lee will continue buying Henderson shares, the company said in yesterday’s statement.

While most Hong Kong developers bought land at government land auctions, Henderson has since the 1970s sent negotiators to persuade owners of dilapidated buildings in older residential areas in the New Territories that border China to sell. Henderson also acquires agricultural land from the government and owners.

The share sale “gives Henderson strong financial flexibility on acquiring old buildings and converting farmlands in Hong Kong,” Ken Yeung, Hong Kong-based analyst at Citigroup Inc., wrote in a report yesterday. “It has shown Lee’s strong confidence in Henderson.”

Gearing Ratio

The company’s gearing ratio, which measures its debt over equity, has fallen 7.6 percentage points to 20.6 percent, wrote Yeung, who has a “buy” rating on the stock.

Lee, ranked by Forbes Magazine this year as Hong Kong’s third-richest man with a net worth of $19.5 billion, founded Henderson in 1973. The developer’s landmark properties include the International Finance Centre, co-developed with Sun Hung Kai Properties Ltd., and luxury residential projects such as the Grand Promenade in Sai Wan Ho in the Eastern district of Hong Kong Island and the Grand Waterfront in East Kowloon.

The buying by Lee and his family since March 18 has been the first insider purchases since October, according to filings to the Hong Kong stock exchange.

The stock surged 23 percent since March 17, the day before Lee started buying the stock, almost three times the Hang Seng Index’s gain.

‘Large Retail Following’

“Lee has quite a large retail following and a lot of people do follow what he buys,” said Andrew Sullivan, director of institutional sales at OSK Securities Hong Kong Ltd. “Normally these guys buy the stock when it’s trading around the lows, so there will be a lot of speculation” on Lee’s plan for the company, he said before the announcement.

Investors typically exercise warrants when stock values exceed the strike price to profit from the transaction. That means Henderson’s shares need to exceed the HK$58 strike price before the June 1 expiration date to draw investors to exercise their warrants.

The company was investigated by the government and raided by police last year after sales of its luxury apartments, including one it claimed would have fetched a world record price, fell through.

To contact the reporter responsible for this story: Kelvin Wong in Hong Kong at kwong40@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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