Just how much is China’s richest man willing to pay to delist Wanda Commercial from Hong Kong?
The market is anxiously waiting for Dalian Wanda Commercial Properties, controlled by China’s richest man Wang Jianlin, to finalise an offer price for existing shareholders in Hong Kong for delisting the share in the city after just 15 months of its listing here.
The shares were suspended on Monday morning following a request by the company to the Hong Kong stock exchange “pending the publication of an announcement pursuant to the Hong Kong Code on Takeovers and Mergers”.
On March 30, Wanda Commercial said it is in the “preliminary phase” of considering a voluntary general offer for the company’s H shares in Hong Kong, which could result in privatisation. The price would not be less than HK$48, according to its filing to the Hong Kong stock exchange, making the total capital needed for the offer HK$31.3 billion.
The company has reportedly been looking to list in China’s A-share market as it feels it is undervalued in Hong Kong.
Wanda Commercial’s share has surged 32 per cent since it announced the potential privatisation, closing at HK$51.25 on Friday in Hong Kong. Before the announcement, it had fallen 19 per cent from its December 2014 initial public offering price of HK$48.
The market widely expects Wanda Commercial to raise the buyout price as cornerstone investors are unlikely to let it go for HK$48, the same price they paid at its listing nearly a year and a half ago.
Wanda Commeicial owns 133 Wanda Plazas and 84 hotels across China.
“We estimate the offer price can be HK$56 or even more,” Citi Bank property analyst Oscar Choi wrote in a report two weeks ago. That figure would be equivalent to 48 yuan, the indicative A-share offer pricing announced by the company. If the company does offer HK$56, it would translate into a 8-10 per cent return for IPO investors.
According to a document viewed by the South China Morning Post, Dalian Wanda Group, Wanda Commercial’s parent company, plans to pay 8-10 per cent guaranteed returns to private equities willing to fund the general offer.
Wang is reportedly targeting a valuation of 20 times earnings for Wanda Commercial in Shanghai, compared with the six times it gets in Hong Kong at present.
“This is not a normal process for privatisation,” said an investment bank property analyst who did not want to be identified. It does not make sense for Wanda to give the market its intended general offer price and cause a stock rally, which would only force the developer to pay more for delisting, said the analyst.
In general, companies need to offer a 30 per cent premium on the last closing price before announcing a potential privatisation.
“Unless he just wanted to see the price go up, don’t understand why he is suggesting an offer price rather than simply announcing one” the analyst said.