Hong Kong’s third richest family makes US$4.6 billion takeover offer for NWS to help ease debt burden at New World Development
- Billionaire family offers to take full control of NWS Holdings, including a 60.9 per cent block held by New World Development worth HK$21.8 billion (US$2.78 billion)
- Offer values the NWS infrastructure group at HK$9.15 per share or HK$35.8 billion and another HK$112 million for unexpired stock options
The family, through Chow Tai Fook Enterprises, offered HK$9.15 per share for NWS it does not already own, a 14.5 per cent premium to the stock’s last traded price before trading was halted last week for the announcement. It plans to retain NWS’s listing status.
The offer is for about 95 per cent of the shares not under its direct control, including a 60.9 per cent block held by NWD, a family-controlled developer that has been struggling with debt burden. Chow Tai Fook Enterprises owns 45.24 per cent of NWD.
That block is worth HK$21.8 billion, from which NWD has proposed to hand out HK$4 billion, or HK$1.59 per share as special dividend to its shareholders to gain their approval.
NWS surged 11.4 per cent to HK$8.90 on Tuesday, while NWD jumped as much as 10.1 before closing 0.8 per cent higher at HK$19.68.
The offer will “immediately strengthen NWD’s financial position, enhance [its] strategic focus on property development, property investment and property related businesses”, according to the exchange filing on Tuesday. It will also help “unlock value for NWD shareholders”.
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“The Insurance Authority will review any changes in the controlling shareholders of authorised insurers in Hong Kong according to its established procedures,” a spokeswoman for regulator said. The authority, however, cannot comment on commercial decisions made by individual companies, she added.
HSBC, BOCI Asia and ING Bank are advising the Cheng family on the takeover. Forbes estimates the family’s net worth at US$28.9 billion, trailing Henderson Land’s Lee Shau-kee US$30.3 billion fortune and “Superman” Li Ka-shing’s US$39 billion.
Cheng’s family investment vehicle Chow Tai Fook Enterprises will hold at least 63.36 per cent of NWS’s share capital once the deal is approved, according to the exchange filing.
“The deal is expected to strengthen NWD’s cash flow position with HK$17.8 billion net proceeds although gearing reduction is limited,” according to Sam Wong, Calvin Leung and Shujin Chen, analysts at Jefferies. Apart from lower gearing, the sale of NWS block will give NWD more flexibility around refinancing, the note added.
NWD’s net gearing of around 47 per cent is expected to fall to nearly 42 per cent, according to the company’s filing. It is one of the most indebted developers in Hong Kong, while its peers average about 20 per cent.
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With floating debt of HK$123 billion as of end June 2022, every 100-basis-point increase in interest rates raises NWD’s cash interest expenses by HK$1.2 billion, Morgan Stanley wrote in a research note in October last year.
Following the Hong Kong Monetary Authority’s increase in its base rate by a combined 5 percentage points after 10 rounds of increases in 15 months, the three-month Hibor, the benchmark for many corporate loans, has crept up. It stood at 5.05 per cent on Friday, compared with about 3 per cent three months ago and 0.9 per cent one year ago.
It is estimated that NWD will record an unaudited consolidated total comprehensive loss of about HK$2.38 billion from the disposal, according to the filing.
“The proposed reorganisation will help NWD to cut down its gearing,” said Louis Tse Ming-kwong, managing director of Wealthy Securities. “It makes sense as the high-interest rate environment is likely to stay for some time as NWD can use the proceeds to repay debt and cut its interest payments.”
