China High Speed shares surge as shareholders back share swap offer from Fullshare

Deal allows Nanjing tycoon Ji Changqun to gain control of China’s largest maker of gearboxes for wind power turbines

PUBLISHED : Tuesday, 22 November, 2016, 6:41pm
UPDATED : Tuesday, 22 November, 2016, 10:00pm

Shares of China High Speed Transmission surged by as much as 8 per cent on news that some 68 per cent of its independent shareholders have accepted a share swap offer from Nanjing tycoon Ji Changqun’s Fullshare, allowing the latter to gain majority control over China’s largest maker of gearboxes for wind power turbines without paying any money.

But shares of Fullshare, which derives most of its profit from property development and also from building energy conservation projects and medical devices and services supply, have fallen after the shares tender result was announced. They had more than doubled in the past year.

China High Speed aims to diversify

Investors appear to be making decisions on whether to accept the offer and on how to trade the companies’ shares for short term profit considerations, given that little is known about the long term business outlook of Fullshare, according to Pierre Lau, head of Asia-Pacific utilities research at Citigroup Global Markets Asia, who was surprised by the result.

“The company [Fullshare] has no analyst coverage and appears not to be familiar to most institutional investors,” he said in a note on Tuesday.

Lau has a HK$9.3 target price for China High Speed, which closed Tuesday 4 per cent higher at HK$8.91, taking its accumulative gain since the offer was announced on September 19 to 19.3 per cent.

Fullshares shares tumbled as much as 11.2 per cent on Tuesday, before closing down 4.9 per cent at HK$4.25, which was 40 times its earnings per share last year when its net profit was inflated by huge non-recurring gains. They have rocketed 153 per cent in the past year.

China High Speed last traded at 11.8 times last year’s earnings.

The company [Fullshare] has no analyst coverage and appears not to be familiar to most institutional investors
Pierre Lau, head of Asia-Pacific utilities research, Citigroup Global Markets Asia

The closing prices mean that there is a chance for investors to buy China High Speed shares, swap them into Fullshares’ shares and sell them for a 19 per cent profit if the latter’s share price holds up.

Lau wrote late last month after meeting with Fullshare management, that he did not believe Fullshares’ offer to swap five of its new shares for every two existing shares of China High Speed, would get the minimum 50 per cent acceptance from the latter’s shareholders, in order for it to be completed.

He called the offer a “non event” at the time, citing the fact that the majority of the shares of China High Speed – other than the combined 37 per cent stake held by its management shareholders and Ji – are held by institutional investors who are not familiar with Fullshare.

China High Speed earnings jump 125.8pc

A spokesman of Value Partners Group, which was one of China High Speed’s largest independent shareholders, that owned a 4.76 per cent stake late last month according to Bloomberg data, told the Post it had sold the entire holdings a few weeks ago. She would not elaborate on the reason for the disposal.

Other than a 61.7 per cent stake in Fullshare and 9 per cent of China High Speed, Ji, a native of Nanjing where China High Speed is based, also owns minority stakes in four Hong Kong-listed firms.

Two of these are in the property business and the others in the personal care and skin care products industry. Ji also owns another US$2 billion to US$3 billion worth of assets, mostly through the unlisted parent firm Fullshare Group, according to Lau.

China High Speed targets improved margins

According to its website, Fullshare Group is engaged in the elderly care, tourism, health products, medical imaging equipment and energy consumption management sectors. Its assets are located in more than 10 nations besides China.

Ji was ranked this year by Forbes as China’s 25th richest person, with a personal fortune of US$5.5 billion.

Including the 9.08 per cent stake held by Ji, shareholders owning 77.15 per cent of China High Speed’s shares have agreed to the swap, leaving only 22.85 per cent in public hands, below the 25 per cent minimum required by Hong Kong listing rules.

China High Speed said an application will be made for an exemption from compliance to the requirement.