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. Yue Xiu was hit by tight credit as a result of the Asian financial crisis and the collapse of Guangdong International Trust and Investment, the financial arm of the Guangdong government. In October, the Guangzhou government received Beijing's approval to give a 95 per cent stake in Guangzhou City Construction and a 50 per cent stake in a holiday resort to Yue Xiu as part of the debt-restructuring plan. China Everbright Securities' head of research, Frederick Tsang, said the asset-injection into Guangzhou Investment was to give the assets a chance to generate income for the loan repayment. 'Guangzhou Investment will help raise funds for developing Guangzhou City Construction's property projects in Guangzhou,' Mr Tsang said yesterday. The acquisition will boost Guangzhou Investment's land bank to 4.2 million square metres from 200,000 square metres in accordance with the proportion of its stakes in a number of property joint ventures. Gross floor area under construction, for sale and lease will increase to 1.67 million square metres from 370,000 square metres. State-owned Guangzhou City Construction is mainly involved with the redevelopment of old districts in the city. The redevelopment projects are in prime areas. The company made an after-tax profit of HK$114 million in the first half of this year. Guangzhou's property market has recovered with moderate price rises in the past two years after enduring a slump caused by over-investment.