China stock market

Future Land shares soar to near record in Hong Kong on founder’s plan to take developer private

PUBLISHED : Wednesday, 19 July, 2017, 12:52pm
UPDATED : Wednesday, 19 July, 2017, 10:20pm

Shares of Future Land Development jumped almost 14 per cent to an 11-day intraday high in Hong Kong on Wednesday, after the developer unveiled plans to take its business private.

Future Land’s shares soared to HK$3.20 in Hong Kong when trading resumed after a seven-day halt, near to its all time high, and closed at HK$3.18. Trading volume expanded to 640 million, the most heavily traded among Chinese property companies listed on the city’s bourse.

Future Land’s chairman Wang Zhenhua had offered HK$3.3 per share cash to buy all the outstanding shares in the Shanghai-based developer, for a total consideration of HK$5.1 billion.

“Since its listing in 2012, the company’s share price performance has not been satisfactory,” Wang said in a company filing Tuesday, adding that the depressed share price has had “an adverse impact” on the company’s reputation in the market, and therefore on its business, and also on employee morale.

The company is the latest in a list of property developers that are seeking to delist from the Hong Kong stock exchange, where the benchmark Hang Seng Index, and the Hang Seng China Enterprises Index trade at the lowest price-earnings ratios among Asia’s major equity bourses.

Last year, Dalian Wanda Commercial Properties delisted from Hong Kong for the same reasons and planned to relist its entity on the mainland stock market for better valuation, but has not made any progress on the transfer so far.

The Hang Seng’s current year P/E ratio is 12.9 times, while the China Enterprises Index trades at 8.6 times, compared with 14.2 times in Shanghai. The higher P/E ratio enables the listed company to raise more capital.

Future Land’s shares trade at 8.7 times estimated 2017 earnings, lower than its listed subsidiary Future Land Holdings’ 9.3 times in Shanghai.

“Although the valuation among A-shares is more attractive than in Hong Kong, it’s not easy for property stocks to get listed on the mainland now, so I don’t think other developers will follow this trend,” said Toni Ho, a property analyst at RHB-OSK Securities. Ho said Future Land should be a standalone case as it already has a listed subsidiary in Shanghai.

Future Land’s planned privatisation is subject to the approval of independent shareholders holding at least 75 per cent of the votes and no more than 10 per cent of the votes against the proposal.

Future Land has developed residential properties and shopping malls in 26 Chinese cities, mostly in the Yangtze River Delta, encompassing Shanghai, Nanjing, Changzhou, Suzhou and Hangzhou.

The company’s first-half contracted sales rose 75 per cent to 49 billion yuan (US$7.25 billion).