Hsin Chong Construction, a Hong Kong-listed company with a market capitalisation of HK$3.08 billion, has agreed to pay HK$10.625 billion for properties in Sanshui city, Guangdong province, which will be developed into residential and commercial projects.
Hsin Chong will buy a piece of land comprising seven plots adjacent to each other with an aggregate site area of about 1.93 million square metres from Rich Century Development, which is wholly owned by the company's warrantor Lin Zhuo Yan, the husband of Hsin Chong shareholder Pony Ma Kwing. Hsin Chong was not available for comment on the transaction yesterday.
Hsin Chong will pay for the acquisition with HK$3.1 billion in cash and the rest in preference shares priced at HK$1.20 each. The issue price of the preference shares represents a premium of approximately 11.11 per cent over the closing price of HK$1.08 per share on the stock exchange on May 14. Hsin Chong shares fell 3.07 percent to close yesterday at HK$1.04.
The construction firm has been expanding into the property development industry since 2011 and has two projects on the mainland, one in Shenyang, Liaoning province and one in Beijing.
"In the long run, it is a sensible move as real estate development will reap higher profit margins than that of the construction business," said AMTD Financial Planning general manager Kenny Tang Sing-hing.
But some analysts said the timing may not be right to invest into second or third-tier cities on the mainland given the softening of home sales in those cities.
The home price index released in early May by CRIC, a unit of E-House China, edged down 0.02 per cent in April from March, the first month-on-month decline since July 2012.
Prices fell in 123 of the 288 cities on its watch list, but they were still up 6.9 per cent from a year earlier.
The company said it will raise at least HK$4.4 billion from equity or equity-linked issues to fund the cash portion of the transaction.
Hsin Chong first revealed the potential acquisition of the Sanshui sites in December last year, when the company announced the signing of a memorandum of understanding with Lin for the possible acquisition.