New World Development

New World taps market for HK$18.6b to buy out China unit

Developer to use funds raised from rights issue for buying out investors in mainland subsidiary

PUBLISHED : Friday, 14 March, 2014, 11:56am
UPDATED : Thursday, 07 May, 2015, 5:06pm

New World Development, the city's fifth-largest developer by market value, yesterday announced it would make an HK$18.6 billion rights issue to take its mainland property arm New World China Land private.

The developer launched an offer to buy back shares of New World China it does not own at HK$6.80 each, a 32.3 per cent premium to the stock's close of HK$5.14 on March 10.

The company controls 69.1 per cent of New World China.

The offer is attractive and offers a fair deal to shareholders of the companies

Shares in New World China, which had been suspended from trading since Tuesday, jumped 29 per cent to close at HK$6.63 following resumption of trading yesterday.

Trading was heavier than normal with 46 million shares worth HK$305 million changing hands.

New World Development, however, dived 14.03 per cent to HK$8.27. The Hang Seng Index closed 1 per cent lower.

Chairman Henry Cheng Kar-shun said: "It is a good time to take New World China Land private. The offers for privatisation and rights issues are reasonable.

"Privatisation could facilitate New World China's fundraising in future.

"If we are unable to take the company private, we'll use the funds [from the rights issue] to buy development sites in Hong Kong and on the mainland."

New World said it planned to raise between HK$13.32 billion and HK$13.99 billion through a rights issue of one share for every three held by investors.

The rights shares will be priced at HK$6.20, 36.3 per cent below the stock's close of HK$9.74 on Monday.

New World said that while the subsidiary would require substantial funding for its future developments, the public equity capital market was not a viable funding option because of the low liquidity of its shares and the fact that the stock market priced them at a 23.1 per cent discount to their net asset value.

After the privatisation, New World said the subsidiary would be able to fund larger property development projects by leveraging its parent firm's financial strength, including its access to more competitive financing terms for bank loans.

An analyst, who declined to be named, said: "The offer is attractive and offers a fair deal to shareholders of the two companies."

"New World Development's property sales have picked up over the past two years and boosted its cash.

"It has given the developer incentives to take New World China Land private."

He also said New World China's cost of funding could be lower after the privatisation.

According to research reports by Bank of America Merrill Lynch, the buyout offer is not cheap as mainland property stocks are going at an average 0.7 times book values.

New World China listed in 1997 at HK$9.70.