The Guangzhou municipal government's Hong Kong investment flagship, Yue Xiu Enterprises (Holdings), will sell a property-development firm to its SAR-listed arm to help repay debts.
Sources said Yue Xiu would sell its entire stake in Guangzhou City Construction & Development to red chip Guangzhou Investment for about HK$5 billion.
The price represented a 40 per cent discount to Guangzhou City Construction's HK$8.35 billion net-asset value, the sources said.
Guangzhou Investment will pay for the deal with HK$2 billion in cash, by way of 2.15 billion new shares at 68 HK cents each as by selling HK$1.55 billon worth of its cement-making business and high-technology projects to Yue Xiu.
Yue Xiu's stake in Guangzhou Investment will increase to 67 per cent from 44 per cent when the deal is completed.
In September last year, Yue Xiu reached an agreement with its creditor banks to restructure HK$4.9 billion of unsecured debt with a five-year secured refinancing loan after a series of negotiations which started in 1998.
The new facility was secured over Yue Xiu's unlisted assets.