Shanghai group bolsters Neo-China
Beleaguered developer Neo-China Land Group has agreed to make Shanghai Industrial Holdings its largest shareholder in a deal worth as much as HK$2.75 billion, capping a selling spree aimed at cutting its debt.
Neo-China pledged to issue nearly 700 million new shares to Shanghai Industrial at HK$2.32 each, contingent on the conglomerate also buying 500 million existing shares at the same price from the developer's former chairman.
Shanghai Industrial would hold 45.02 per cent of Neo-China after completion of the deal, a filing with the Hong Kong stock exchange said.
'It's not a secret that Neo-China has had problems repaying its debts, and it's found a seller in Shanghai Industrial,' said Patrick Chow, an analyst at Everbright Securities. 'So there's a good motive [to sell].'
Mainland developers face pressure to inflate their balance sheets to build up land banks and carve their niches in the crowded industry. Some have struggled to clear their loan books after the financial crisis.
Neo-China has dumped assets to stay afloat, disclosing three disposals in its results for the half-year ended October 31 last year that raised more than HK$1.5 billion in cash. It also sold a wholly owned subsidiary last month for HK$1.1 billion.
Standard & Poor's raised Neo-China's credit rating in December after it reached a deal to defer payment on a 1.5 billion yuan (HK$1.7 billion) loan. The agency lifted the mark from CC to CCC-minus, but kept its negative outlook on the firm.
'The company's business risk profile is vulnerable and its financial risk profile is highly leveraged,' Bei Fu, a credit analyst at S&P, wrote in a report. 'The rating takes into account Neo-China's corporate governance, which we consider weak, and the cyclical and competitive nature of the Chinese real estate industry.'
Neo-China plans to use the proceeds from the share issue to boost its capital and pay down debt. It also hopes the partnership with Shanghai Industrial will provide a catalyst for its shares to be unfrozen. Neo-China has been suspended from trading in Hong Kong since January 2008.
The firm posted a HK$126.7 million profit for the six months to October, reversing a HK$271.4 million loss over the same span in 2008.
'Shanghai Industrial is just interested in Neo-China's assets,' Taifook Securities research head Marco Mak said. 'By acquiring those assets, it can avoid the corporate governance problems at Neo-China.'
White knight
Shanghai Industrial will partner Neo-China in a deal worth HK$2.75b
On completion of the deal, the Shanghai firm will be the top investor in Neo-China with a stake of about: 45%
