Evergrande’s Hong Kong ally boosts Chinese Estates shares with privatisation bid at 83 per cent premium

Chinese Estates’ stock surged 32 per cent, adding HK$1.77 billion in market value to the developer
Company intends to dump its remaining 4.4 per cent stake in Evergrande amid its liquidity woes, ending ties spanning 12 years

China Evergrande Group

Cheryl Heng

Published: 3:40pm, 7 Oct 2021

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Chinese Estates Holdings soared after the family of Hong Kong tycoon Joseph Lau Luen-hung offered to take the property developer private, giving the stock a HK$1.76 billion (US$226 million) boost in market value.

The shares jumped 32 per cent to HK$3.82 at the close of trading on Thursday in one of their biggest rallies since a 60 per cent surge in June 2020. The gain added to a 2.8 per cent appreciation last month, halting a six-month rout partly associated with its soured investment in debt-laden China Evergrande Group.

Lau’s spouse Chan Hoi-wan offered to buy 25 per cent of the company from minority investors at HK$4 per share, or 83.5 per cent premium to its last-traded price before the privatisation announcement late Wednesday. The offer will cost HK$1.9 billion and value the entire company at HK$7.63 billion.

Lau and Chan currently control 75 per cent of Chinese Estates directly, through trusts held for their children and through other family members, according to the stock exchange filing.

Joseph Lau (second Left) and his wife Chan Hoi-wan leave China Evergrande Centre in Wan Chai, Hong Kong, in a March 2017 file picture. Photo: Edward Wong

The privatisation offer came two weeks after the group decided to dump all its interest in Evergrande as the Chinese home builder teeters on the brink of collapse under more than US$300 billion of liabilities. The decision could spell the end of business ties between the two tycoons forged over several large-scale transactions in the past 12 years.

The directors are cautious and concerned about the recent development of Evergrande including its liquidity and going concern, Chinese Estates said in the offer statement. “With issues (especially liquidity issues) surrounding the real estate sector, in particular Evergrande, the prices of these securities have declined substantially in 2021.”

The Hong Kong developer derived most of its earnings from investment dividends, having sold as few as one property annually in recent years. That investment income shrank to HK$530 million in the first half from HK$1.72 billion a year earlier while its assets devalued.

Evergrande’s founder Hui Ka-yan (centre), seen during the 18th Session of CPPCC’s 12th Standing Committee meeting in Beijing. Photo: Handout

“For Chinese Estates’ privatisation, its book value per share was HK$13 which means the current share price is at a huge discount,” said Will Shum, portfolio management director in Hong Kong at iFast Financial. “It’s still a good deal to do.”

The company sold 108.9 million shares in Evergrande for HK$246.5 million between August 30 and September 21 and another block of 168.8 million shares on September 23 for HK$442.7 million, according to Wednesday’s filing. They are expected to generate a combined loss of HK$3.45 billion in its 2021 financial accounts.

The company said it expects to sell its remaining 4.4 per cent stake in Evergrande in the future, without specifying the timeline. Assuming a sale based on Evergrande’s last-traded price of HK$2.95, the company would incur about HK$7 billion of loss against its book value, it added.

Declines in the market prices of its investments have since eroded the value of its investment assets to HK$13.8 billion on June 30 from HK$16.3 billion at the end of 2020.

This article appeared in the South China Morning Post print edition as: Chinese Estates jumps by 32pc on privatisation bid