Midland splits property business amid market slump as founder offers to take control of commercial brokerage unit
- Midland’s divestment of commercial property arm could be a move to make their balance sheet look better, says Royston Securities’ Kenny Tang
- Shares of Midland IC&I and Midland Holdings have dropped by 12 and 30 per cent, respectively this year
Freddie Wong Kin-yip, the founder of Hong Kong-listed property agency Midland, wants to buy the non-residential arm of the business from the group under a reorganisation to overcome an industry slump.
Wong has offered to buy the shares of Midland IC&I at HK$0.09587 each, a small discount of around 0.14 per cent from the last trading price on Monday, according to an exchange filing late on Tuesday.
The 69-year-old executive, who established the business in 1973, and his related parties in concert are funding the offer with a HK$100 million (US$12.9 million) loan from broker Get Nice Securities.
The offer was triggered by Midland Holdings to distribute its 33.84 per cent stake in Midland IC&I, a commercial and industrial property agency, as dividends to shareholders. The distribution lifted Wong’s effective stake in the unit to above 30 per cent, requiring him to make the offer under Hong Kong’s takeover code.
The reorganisation comes at a time when Hong Kong’s property market is facing a severe crunch as the city struggles with its worst recession on record amid the Covid-19 pandemic. The economic crisis has followed months of social unrest at home and a bitter US-China trade war. It prompted the monetary authority in August to roll back its market-cooling measures for the first time since 2009.
Breaking up the residential and commercial property arm could be a move to make their balance sheet look better, said Kenny Tang Sing-hing, co-founder and chief executive of Royston Securities.
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“Commercial property, particularly street shops, are especially sensitive to downturns in the economic cycle,” Tang said. “When the economy is in the doldrums, you can close shop and choose not to do business. But for residential property, people still need to find a roof to live under. The demand is very different.”
Shares of Midland IC&I gained 1 per cent to HK$0.097 on Wednesday, while Midland Holdings rose 2.6 per cent to HK$0.79. They have each lost 12 per cent and 30 per cent in value this year.
Midland Holdings lost HK$24.4 million in the first half, its worst interim results since 2016, and a reversal of the HK$93.6 million profit a year earlier. Midland IC&I reported a HK$7.9 million loss in the same period, compared with a profit of HK$21 million a year ago.
The reorganisation will allow a clear delineation between the two listed groups. The holding group is focused on the residential segment in Hong Kong, mainland China and Macau markets, while its IC&I unit is engaged in the commercial, industrial and retail spaces in Hong Kong.
“Both listed groups will be able to benefit from a full delineation to better formulate their corporate and business development strategies that suit their own development plans,” Midland said in a filing.
