- The Hong Kong developer offers HK$7.80 for each share of unit
- Company failed in bid to take China unit private in 2014
New World China Land Ltd. shares surged to the highest in more than eight years in Hong Kong on an offer by its parent to take the China unit private for HK$21.5 billion ($2.8 billion), after a similar bid was rejected by minority shareholders in 2014.
The shares jumped 21 percent to HK$7.50, the highest since November 2007, at the midday break. New World Development Co., the developer controlled by the family of Hong Kong billionaire Cheng Yu-tung, is offering HK$7.80 for each share of New World China, a 26 percent premium to the last closing price, the company said in a statement to the Hong Kong exchange Wednesday.
New World Development is seeking to streamline operations four years after 90-year-old Cheng announced his retirement from the main business. With the latest privatization bid, New World Development is pushing ahead with a different deal structure and a higher premium to increase its chances of success. The company is making a general offer, which isn’t subject to the “headcount” rule that gives each investor the same voting right. Shareholders holding about 0.16 percent of shares had rejected the 2014 bid to take the company private.
“The offer price is higher than in the last privatization attempt, and it means a better valuation of the company than its peer developers,” Bocom International Holdings Co.’s Hong Kong-based analyst Alfred Lau said by phone, adding that it could potentially boost New World Development’s chance to succeed.
Minority investors rejected the 2014 attempt by New World Development to take the Cayman Islands-incorporated China unit private for $2.4 billion, forcing Cheng to wait at least 12 months for another try. The 2014 proposal, which was made as a “scheme of arrangement,” was rejected under the headcount test that allowed investors holding a minority of shares to prevail even though 34 percent who voted in favor held 99.8 percent of the shares. New World Development is now using a general offer, which isn’t subject to the headcount test.
“The outcome of the previous proposal did not reflect the preference of the majority” of independent shareholders, the company said in the statement Wednesday.
HSBC Holdings Plc, which is the financial adviser on the deal, is providing a HK$21.47 billion credit facility to help finance the offer, according to the statement.
“Given that the structure of the takeover has now been changed to circumvent the test, we are of the initial view that the offer will be successful,” Religare Capital Markets SP Pte’s Justin Tang wrote in an e-mailed note.
Shares of New World Development and New World China had been halted from trading on Monday pending the announcement.
New World Development and companies associated with Cheng already own about 70 percent of New World China, exchange filings show. The Cheng family has been selling some China assets and Cheng transferred his shares in six Hong Kong-listed companies, valued at about HK$3.8 billion, to a family holding firm last month. With about HK$31 billion in cash as of June 30, the developer has more than enough money for the offer this time after a rights issue and last year’s strong sales, according to Bocom International.
The offer came after New World China agreed last month to sell 7.3 billion yuan ($1.1 billion) of properties in two Chinese cities to Evergrande Real Estate Group Ltd., controlled by billionaire Hui Ka-yan. Last year was the biggest for acquisitions by listed developers since at least 2004, according to data compiled by Bloomberg, with Evergrande accounting for more than a quarter of the $25 billion in transactions.
The China unit, which listed on the Hong Kong stock exchange in 1999 at HK$9.50 a share, has residential, retail, office, and hotel projects in more than 20 Chinese cities, including Beijing and Shanghai, according to its website.