ESR Shareholders Said Exploring Privatisation as Hong Kong Property Stocks Suffer

A group of shareholders in Asia Pacific warehouse giant ESR is exploring options that include a privatisation of the Hong Kong-listed company, according to sources familiar with the discussions, as the regional fund manager finds its stock price sliding amid a broader sell-off of property-related shares.

Talks involving some shareholders in the firm remain in preliminary stages with no transaction planned at this point, Mingtiandi can confirm, and could represent a search for optimal shareholder value after ESR shares have slid 67 percent from their early 2021 peak. That decline took place as the Hang Seng index lost nearly half of its value over the same period, with real-estate-related stocks having been singled out for punishment by investors globally.

The Warburg Pincus-backed developer’s discussions were first reported by Bloomberg, with ESR shares up 9 percent in Wednesday’s session on the news. The firm’s stock price of around HK$10.20 translates to a market capitalisation of more than HK$43 billion ($5.5 billion), with shares trading at a roughly 45 percent discount to book value.

Privatisation is a reasonable option for ESR, which looks to have been unfairly penalised by the local market, said Brock Silvers, chief investment officer at Hong Kong-based Kaiyuan Capital.

“The HKEX bear run is China-driven, while ESR is actively deploying capital across the region,” Silvers told Mingtiandi. “ESR’s stock is unloved, but the company has raised massive capital this year and its fund management EBITDA is growing. Management may thus consider the current market cap to represent strong privatisation potential.”

Buyout Fever

Any take-private decision by ESR would follow several high-profile buyouts and attempted takeovers of Hong Kong-listed firms in 2023.

The Cheng family took private its NWS Holdings construction business late last year in a HK$35.5 billion ($4.5 billion) deal that saw the clan acquire the 60.9 percent of NWS shares it did not already own, including a majority stake held by family-controlled New World Development. Debt-laden NWD reaped HK$21.8 billion in proceeds from the disposal, which will be used for deleveraging.

Dali Foods, the snack maker controlled by Xu Shihui, went private last August in a buyout led by the Fujian tycoon, who saw his paper wealth climb by $1.2 billion after the share price surged following his surprise announcement. Cinema operator IMAX offered $123 million to buy the 28.4 percent of IMAX China it did not already own, but shareholders rejected the deal in October.

The Hong Kong market concluded 2023 with 70 initial public offerings that raised HK$46.3 billion, down 21 percent and 56 percent respectively from year-earlier levels, according to professional services firm KPMG, as HKEX-listed stocks fell for a fourth straight year. The story was little better on the mainland, with IPO fundraising on the Shanghai and Shenzhen bourses down 47 percent and 32 percent respectively.

Ready for Rebound

ESR’s assets under management grew 9 percent year-on-year to $147 billion in the six months to last June, despite rising interest rates and a slower market for asset sales. In recent years the company has expanded beyond warehouses into fast-growing sectors including data centres as it aligns its projects with the expansion of Asia Pacific’s “new economy”.

While ESR posted an 18 percent dip in adjusted earnings before interest, tax, depreciation and amortisation for the six-month period, the firm chaired by Jeffrey Perlman pointed to growth in its fund management business as boosting income and preparing it for a market rebound.

Private equity major Warburg Pincus held a 13.4 percent stake in ESR at the end of 2022, with Canadian pension fund OMERS owning 10.3 percent and ESR co-founders Jeffrey Shen, Stuart Gibson and Charles de Portes holding a total of 22 percent.