Coastal Greenland seeks control of unit through asset sales
Small developer Coastal Greenland plans to sell all of its residential projects to its Shanghai-based associate company, allowing the Hong Kong-listed company to take as much as 80 per cent of the A-share vehicle.
Shanghai Fenghwa, which is 21.13 per cent owned by Coastal Greenland, will issue as much as 10.44 billion yuan (HK$11.67 billion) of new shares to buy nine of Coastal Greenland's subsidiaries. The units own 12 mainland projects and intellectual property rights.
Shanghai Fenghwa will issue not more than 600 million new A shares to the company at a subscription price of 17.40 yuan each. The number of shares to be issued will be subject to a final valuation of the assets proposed to be sold.
As a result, Shanghai Fenghwa, which has a book net asset value of 173.05 million yuan last year, will become an approximately 76 per cent indirectly owned subsidiary of Coastal Greenland.
The proposed sale has yet to be approved by the Hong Kong stock exchange, the China Securities Regulatory Commission and independent shareholders of the two companies. Coastal Greenland chairman Chan Boon Teong said the company would shift its focus to commercial property investments if the deal pushed through.
'By controlling an A-share-listed company, the deal will allow us to enhance our fund-raising capability and financial flexibility in developing residential and commercial projects,' said Mr Chan.
'We are not selling our residential projects, we still own 75 to 76 per cent of these projects through Shanghai Fenghwa.'
Having a mainland-listed subsidiary would make it easier for the firm to borrow from mainland banks. Foreign real estate companies including Hong Kong firms are finding it increasingly difficult to remit foreign currencies into the mainland due to complicated approval procedures.
Shares of Coastal Greenland fell 5.1 per cent to HK$1.12 yesterday while Shanghai Fenghwa jumped 10 per cent to 10.6 yuan.
Joe Zhang Huaqiao, the chief operating officer of Shenzhen Investment, said minority shareholders of Coastal Greenland should not take a short-term approach to the deal. Shenzhen Investment owns a 22.58 per cent stake in Coastal Greenland.
'We support the move. It will give [Coastal Greenland] a new fund-raising platform,' said Mr Zhang. 'In the long run, we are very confident about the A-share market.'
Patrick Yiu Ho-yin, an associate director at CASH Asset Management, said the restructuring was similar to one done by Shimao Property Holdings at the end of last year.
In December last year, Shimao got minority shareholders' approval for the injection of 11 retail and commercial properties into Shanghai-listed sister firm Shanghai Shimao. In return, Shimao will take a 74 per cent stake in Shanghai Shimao.
'Whether minority shareholders will approve the deal will be subject to the A-share market performance in the coming months,' said Mr Yiu.