New World to buy out its China retail unit in HK$934.5 million privatisation plan

New World Development, the holding company of the Cheng family, one of the wealthiest in Hong Kong, will buy out a retail unit that operates department stores in mainland China in a HK$934.5 million (US$119.90 million) privatisation plan.

New World Development will offer HK$2 per share to buy the 27.7 per cent of New World Department Store China that it does not already own, according to a statement to the Hong Kong stock exchange. Shares of the retail operator jumped 43 per cent to HK$1.90 in Hong Kong trading, while New World Development was unchanged at HK$10.78.

The privatisation comes at an optimal time, as the retailer’s stock price has fallen by more than 65 per cent since its initial public stock offering in 2007, according to Alvin Cheung Chi-wai, associate director at Prudential Brokerage.

“It’s a typical example for listed companies to spin off their assets at high valuations during boom time and privatise them” during the downturn of the stock’s price, Cheung said.

The retailer, which owns New World stores across 22 cities in mainland China and is 72.3 per cent owned by New World Development, debuted on the Hong Kong bourse in 2007 at HK$5.80 per share. New World Development was established by the late Cheng Yu-tong in 1970, and has businesses in infrastructure, hotels, property and transport.

“In addition, the traditional retail business has been hit by the rapid growth of online shopping in the mainland and profit margin was significantly squeezed by competition,” he said.

Jonas Kan, head of property research at Daiwa Capital Markets, said the privatisation of the mainland department store could offer greater flexibility for the majority shareholder to revamp its business.