Chinese Estates offers to take company private after selling stake in debt-ridden China Evergrande at loss

  • Joseph Lau’s family offers HK$4 apiece to public investors in Hong Kong-listed firm, whose stock closed at HK$2.18 on last trading day before it was suspended
  • Company says losses arising from sale of China Evergrande shares had exacerbated its fundamentals

The family of Hong Kong magnate Joseph Lau Luen-hung is planning to take Chinese Estates Holdings private and on Wednesday offered an 83.5 per cent premium for shares held by minority owners.

The family is offering HK$4 apiece to public investors in the Hong Kong-listed company, whose stock closed at HK$2.18 on September 28, the last trading day before it was suspended, according to a stock exchange filing. It will shell out a combined HK$1.9 billion (US$244.9 million) for the shares.

Lau’s family currently controls about 78.6 per cent of Chinese Estates and, based on its offer price, values the company at HK$7.63 billion.

The purchase offer comes after Chinese Estates sold shares in debt-ridden China Evergrande Group.

Evergrande, which is controlled by Chinese billionaire Hui Ka-yin, is the world’s most indebted developer with total liabilities worth US$300 billion and is desperately trying to avert a potential default.

Chinese Estates said on Wednesday that the losses arising from the sale of China Evergrande shares had exacerbated the company’s fundamentals. Chinese Estates lost HK$1.38 billion after dumping 108.9 million China Evergrande shares in the open market between August 30 and September 21, according to the filing made to the Hong Kong stock exchange.

The family of Joseph Lau Luen-hung (right) controls about 78.6 per cent of Chinese Estates.

Chinese Estates sold the Evergrande shares in the open market for HK$246.5 million, or HK$2.26 each on average. The Evergrande stock was changing hands at HK$3.42 on average during that period, according to Bloomberg data.

The average disposal price in August and September represents an 86 per cent discount on its average purchase price.

The company said it expected further losses from its sale of China Evergrande shares and that an uncertain business outlook could further weigh on Chinese Estates stock, which has already shed 23 per cent this year. It said the privatisation proposal give its minority owners the opportunity to dispose of their shares without any further risks.

“It is observed that the business environment in which the company operates is challenging and uncertain. The Covid-19 pandemic continues since early 2020 and shows no sign of significant improvement in the near future. Its social and economic impacts are major and unprecedented,” the company said.

The disposal and possible exit by Chinese Estates is a significant moment in its ties with Evergrande’s Hui. Chinese Estates has been either a buyer or a seller in every significant financial transaction by Evergrande since it went public in November 2009.

Chinese Estates, the sole cornerstone investor in Evergrande’s initial public offering 12 years ago, held 751.09 million Evergrande shares, or 5.66 per cent of the Shenzhen-based developer, as of August 31. It paid HK$13.59 billion to top up its Evergrande stake in 2017 and 2018, picking up a total of 860 million Evergrande shares at an average price of HK$15.80 each, according to filings.

Lau’s family said on Wednesday that it would sell more Evergrande shares either through block trades, or in a series of transactions “depending on the prevailing market conditions”.

Author: Daniel Ren, SCMP

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