New World Development

New World buyout proposal rejected

Parent firm's future plans thrown into doubt after 65pc of independent shareholders of the China property unit snub the HK$18.6b offer

PUBLISHED : Tuesday, 17 June, 2014, 4:41am
UPDATED : Thursday, 07 May, 2015, 5:06pm

Shareholders of New World China Land yesterday rejected New World Development's HK$18.6 billion proposal to take the company private, effectively throwing the parent firm's future plans into doubt.

More than 65 per cent of independent shareholders of New World China rejected the privatisation, the company said in a statement to the stock exchange. Only 34.05 per cent of the shareholders backed the proposal.

"I have not yet considered whether to propose the privatisation again or revise the offer," Henry Cheng Kar-shun, the chairman of both firms, said after the meeting. "We failed to take the company private because it does not have enough backing from independent shareholders. I will respect the shareholders' decision."

With the decision, the extraordinary general meeting for the privatisation was adjourned indefinitely.

Cheng said the funds raised from a rights issue would be used for the redevelopment of the New World Centre in Tsim Sha Tsui, land acquisitions and operating costs.

In March, New World proposed to privatise the 69.1 per cent-owned mainland property arm, offering HK$6.80 per share in cash, a 32.3 per cent premium to New World China's close of HK$5.14 on March 10. The firm then launched a rights issue in April to raise HK$13.3 billion to finance the privatisation.

Shares in New World and New World China were suspended from trading yesterday, pending the result of the privatisation, and will resume trading today. New World last traded at HK$8.90 on Friday while New World China finished the session at HK$6.38.

One analyst, who asked not to be named, said the development was "bad news for shareholders" because they would not be able to buy discounted shares of New World China and increase their positions in the company.

The analyst said the funds from the rights issue could still be used to improve New World's financial condition.

New World said in March the privatisation could facilitate New World China's fundraising in the future.

While New World China would require substantial funding for future developments, the public equity capital market was not a viable funding option because of the low liquidity of its shares and the fact that the stock market priced them at a 23.1 per cent discount to their net asset value.

New World said the subsidiary would be able to fund larger property development projects after the privatisation by leveraging its parent company's financial strength, including its access to more competitive financing terms for bank loans.

New World's net gearing ratio was 35.2 per cent at the end of last year.

"It is higher than that at the other developers," the analyst said. "Sino Land is in net cash, while Henderson Land Development's net gearing ratio is 17.2 per cent at the end of last year. New World's gearing ratio would be even higher if the redevelopment of New World Centre was included. I don't think the company will be aggressive in land acquisitions in the future."