Glorious Property Gets $589 Million Buyout Bid From Zhang

Chinese billionaire Zhang Zhirong offered as much as HK$4.57 billion ($589 million) to take Glorious Property Holdings Ltd. private after the developer’s shares fell on slumping sales and amid financial woes at another company he controls.

Zhang will pay HK$1.80 a share, 45 percent more than the last traded price of HK$1.24, for all outstanding stock, Glorious Property said in a Hong Kong stock exchange filing yesterday. Zhang, who has a 68.4 percent stake in Glorious Property, intends to finance the purchase by using an external loan facility, according to the filing. Shares soared by a record in Hong Kong after resuming trading.

Glorious Property’s sales have slumped this year and its shares have tracked the decline in China Rongsheng Heavy Industries Group Holdings Ltd. after the shipyard co-founded by Zhang sought a government bailout amid slumping global demand for vessels. The developer’s shares were trading at less than half their net asset value before the buyout offer.

“Investors are losing confidence because of sluggish property sales of Glorious and increasing difficulty for it to get financing, while Glorious’s stock valuation is very low and the company still has some valuable assets,” said Hugo Hou, a Hong Kong-based property analyst at Haitong International Securities Co. “A privatization plan sounds reasonable in this case.”

Stock Jumps

The developer with residential, office and retail projects in 12 Chinese cities, including Beijing, Shanghai and Nanjing, has failed to meet its annual sales target every year since 2010, when the government started introducing property curbs as price gains accelerated, Hou wrote in a September report. The company’s reluctance to sell quality projects and unproductive construction progress also lead to weak sales, according to Hou.

Glorious Property surged as much as 40 percent, the biggest intraday gain since the shares debuted in October 2009, and closed 33 percent higher at HK$1.65 in Hong Kong. The stock had been suspended since Oct. 18, when it jumped 6.9 percent to HK$1.24.

Rongsheng, the biggest private Chinese shipbuilder, is seeking a government bailout after accumulating 25 billion yuan ($4.1 billion) in unpaid loans as of June. Some customers sought to postpone delivery of vessels amid a sluggish global shipping market that has delayed collection of receivables, Rongsheng said in a statement in August.

“The money Zhang will use to privatize Glorious will be just a drop in the bucket for Rongsheng, which is expected to record big losses this year,” said Lawrence Li, a Shanghai-based analyst at UOB Kay-Hian Holdings Ltd. “Zhang doesn’t have to take such risks with Rongsheng. He made the right choice by choosing Glorious.”

Reputation Impact

Zhang quit as chairman of both Glorious Property and Rongsheng in November last year. Rongsheng shares dropped 4.4 percent to HK$1.08 in Hong Kong trading today.

Zhang isn’t happy about Glorious Property trading at a discount to its asset value, according to the filing.

“The offeror considers that the depressed price of the shares has had an adverse impact on the company’s reputation with customers, and therefore on its business and employee morale,” Glorious Property said. Zhang plans to delist the company after completing the buyout, it said.

Glorious Property’s 13.25 bonds due 2018, which were downgraded to CCC+ by Standard & Poor’s in September, were quoted at 84 cents on the dollar in Hong Kong yesterday, Bloomberg prices show. The notes priced at par in February, data compiled by Bloomberg show.

Falling Sales

“The offering price is reasonable, and it shouldn’t have a big problem to get approved by shareholders,”said Chen Duo, a Hong Kong-based property analyst at Credit Suisse Group AG, in a phone interview today. “If the plan is not approved, share prices will drop even lower and it will be harder for any additional plan to come out.”

Kim Eng Securities Hong Kong Ltd., Zhang’s financial adviser on the deal, “is satisfied that sufficient financial resources are available to the offeror” to pay for the deal, Glorious Property said in the same statement.

The developer sold 4.96 billion yuan of properties in the first nine months of the year, compared with 8.9 billion yuan in the same period a year earlier.

Sales at Rongsheng plunged 71 percent in the first half of the year and the shipping company’s cash and cash equivalents decreased by 1.27 billion yuan to 871 million yuan as of the end of June, the company said in August.