Evergrande backer Chinese Estates to go private after share plunge

The Hong Kong real estate firm agreed to buy out minority shareholders for HK$4 apiece. PHOTO: REUTERS

HONG KONG (BLOOMBERG) - Chinese Estates Holdings, controlled by a long-time backer of embattled developer China Evergrande Group, offered to take the company private after the stock plunged to an 18-year low.

The Hong Kong real estate firm, owned by the family of billionaire Joseph Lau, agreed to buy out minority shareholders for HK$4 apiece, or HK$1.91 billion ($245 million) for the 25 per cent stake, according to a Hong Kong stock exchange filing on Wednesday (Oct 6). The Lau family already controls about 75 per cent of the company.

The Lau family going private represents the biggest retreat yet by a long-time backer of Evergrande and its billionaire Chairman Hui Ka Yan - Mr Lau is part of the so-called "Poker Club" of tycoons who have backed Mr Hui's ventures over the years.

The developer's stock has spiralled on concern that an Evergrande collapse could spill over into the property sector in China and Hong Kong. Chinese Estates had been a major shareholder of Evergrande before paring its stake beginning in August, and said in its statement on Wednesday that it has concerns over whether the sliding Evergrande can correct course.

"Directors are cautious and concerned about the recent development of China Evergrande Group including certain disclosures made by China Evergrande Group on its liquidity," said the statement.

The group is considering possible consequences "in the event that the remedial measures said to have been taken and to be taken by China Evergrande Group could not be effectively implemented".

The company said it could realise a loss of HK$10.4 billion if it sells the rest of its shares in the battered mainland developer this year, after estimating the potential losses last month to be about HK$9.5 billion.

Chinese Estates soared 33 per cent to HK$2.90 in early Hong Kong last week before it was halted pending the announcement to the bourse. The stock was up 29 per cent at HK$3.73 at 10.04am on Thursday.

Solar Bright, a British Virgin Islands company ultimately owned by Mr Lau's wife Chan Hoi-wan, is making the offer to take the company private. The bid is in concert with parties including Ms Chan's mother and Mr Lau's brother and sister.

"There are many uncertainties including higher interest rates in the real estate and financial markets, making the company's share price unpredictable," Ms Chan, who is chief executive officer of Chinese Estates, said in a statement on Wednesday night. "This has posed high risks for investors."

Her decision to privatise the company is to "provide an opportunity for minority shareholders to cash out" and to transfer all the risks to herself, she said.

Mr Lau, who is worth US$6.7 billion (S$9.1 billion), according to the Bloomberg Billionaires Index, resigned as chairman of Chinese Estates after he was convicted of bribery and money laundering in Macau in 2014. Mr Lau's wife, a former entertainment reporter, was appointed chief executive in February.

The firm that Mr Lau took control of in 1986 develops homes in Hong Kong and commercial properties including office towers and shopping malls in the former British colony, mainland China and Britain. Its business has been hurt by the coronavirus and posted a loss in the first half of this year, but it also faces a major threat from its stake in Evergrande.

Chinese Estates bought about 6.5 per cent of Evergrande at an average cost of HK$15.80 a share between 2017 and 2018, when the housing giant was expanding. The stock traded recently at HK$3. The group and Ms Chan owned almost 9 per cent of Evergrande combined at the peak. Ms Chan also subscribed to share sales by Evergrande's property services unit last year and its new energy vehicle arm in March. The company still has a 4.4 per cent stake.

Chinese Estates soared 33 per cent to HK$2.90 in early Hong Kong last week before it was halted pending the announcement to the bourse. The shares are due to start trading again on Oct 7, the filing says.

The market value of Chinese Estates stands at about US$710 million as at its last trading day. The privatisation proposal values its entire issued share capital at HK$7.63 billion, according to the filing.

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