Chinese developer Midea Real Estate’s Hong Kong shares surge 100% on spin-off plan
- The developer plans to demerge its property development arm, offering shareholders the option of buying out their shares at a 57 per cent premium
Shares of Midea Real Estate Holding more than doubled in intraday trading on Monday after the company announced a plan to privatise its property development arm, a move that could cut risks associated with mainland China’s crisis-ridden industry.
The Foshan-based developer will spin off the property development and sales (PD&S) business by transferring shares to majority shareholders through “a distribution in specie”, according to a filing to the Hong Kong stock exchange on Sunday evening. Distribution in specie means transferring the ownership of an asset from one company to another in its current form.
Shareholders have the option to receive cash instead of shares. Those who opt for cash will be paid HK$5.90 per share, a 57.33 per cent premium over the last closing price on Friday.
Midea’s shares closed nearly 70 per cent higher at HK$6.37.
“While the group has maintained healthy financial ratios and managed to satisfy the requirements of the ‘three red lines’ … the group still incurs significant burdens and liabilities to support its PD&S business,” Midea said.
“The separation ... will reduce the liabilities of the group and credit risks associated with the asset heavy nature of the real estate development business,” it said, adding that the disposal could also help the company streamline its operations and focus on the rest of its asset-light business, which has higher profit margins compared with the property development business.