New World Sells Hotels to Abu Dhabi Venture for $2.4 Billion

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New World Development Co., controlled by the family of Hong Kong billionaire Cheng Yu-tung, said it will sell three hotels to a joint venture with Abu Dhabi Investment Authority for HK$18.5 billion ($2.4 billion).

The developer will receive HK$10 billion in cash for the sale, it said in a statement to the Hong Kong stock exchange. A unit of New World will hold 50 percent of the venture, with Abu Dhabi Investment owning the rest, it said. The hotels include the Grand Hyatt in Hong Kong.

The sale follows New World’s previous attempt to spin off the three hotels in a Hong Kong share sale in 2013, which sought to raise as much as $1 billion and was aborted because of market volatility, people with knowledge of the matter said at the time. The proceeds from the new deal will be used for its development projects, expanding its inventory of land, and working capital, the company said.

“The company wants to actively buy land but doesn’t want to increase its gearing,” said Joyce Kwock, an analyst at Credit Suisse Group AG. The sale “makes sense as hotel operations have gotten more difficult,” she said.

New World shares advanced as much as 4.2 percent, set for the biggest gain in more than 18 months, and traded 1.6 percent higher at HK$10.24 as of 10:24 a.m.

The company will record a gain of around HK$15.5 billion on the sale. The other two hotels to be sold are the Renaissance Harbour View and Hyatt Regency. The Grand Hyatt is the company’s flagship hotel in Hong Kong, located in the Wan Chai district and connected to the city’s convention and exhibition center.

Recycling Capital

“We continue to retain long-term interests in these prime hotel assets in Hong Kong whilst at the same time recycling capital to pursue other value-enhancing investments,” New World Vice Chairman Adrian Cheng said in the statement Thursday.

The builder held stakes in 18 hotels in Hong Kong, China and Southeast Asia as of Dec. 31, according to its interim report. Its hotel operations posted a 19.7 percent decline to HK$361.4 million in its fiscal 2014, largely due to expenses associated with opening new hotels in China.

Cheng’s family also controls Chow Tai Fook Jewellery Group Ltd., the world’s largest listed jewelry chain. Its closely held investment company Chow Tai Fook Enterprises Ltd. currently has a 36 percent stake in two of the hotels and will retain a stake in the venture.

New World revived a HK$9.25 billion loan after talks for the joint venture resumed earlier this year, people familiar with the deal said this month.

Abu Dhabi Investment is the world’s second-biggest sovereign wealth fund, according to the Las Vegas-based Sovereign Wealth Fund Institute.

This is the second time in the last six months a Middle Eastern sovereign fund expanded its portfolio in Hong Kong. Qatar Investment Authority in October agreed to buy 19.9 percent of Lifestyle International Holdings Ltd., the owner of the Sogo department store in Hong Kong, for about HK$4.78 billion.

JPMorgan Chase & Co. is the sole financial adviser to New World on the deal.