The K-11 mall at Hong Kong New World Tower in Shanghai
While Asia’s richest man, Li Ka-shing has been selling out his China real estate assets, Hong Kong’s fifth wealthiest billionaire has decided to double-down on his China bets by taking New World China Land Limited (HKG:0917) private.
The HK$18.6 billion (US$2.4 billion) bid by Cheng Yu-tung’s New World Development Co (HKG:0017) to buy back shares in the company’s China subsidiary shows a confidence in the company, as well as the China market, that is not shared by all investors.
Stock in New World China Land has traded below the company’s net asset value for more than six years.
According to a report in Bloomberg, shareholders in the Hong Kong-listed real estate developer will receive a premium of 32 percent for their shares over Friday’s closing price of HK$6.63. The stock rose 28.99 percent in trading on Friday, while shares of its parent, New World Development, were off more than 14 percent.
Li Selling Off China Assets
In contrast to Cheng’s decision to take his China subsidiary private, the man best known for profiting from real estate in the region, Li Ka-shing has been bearish about the prospects for the country’s property markets.
In February Li’s ARA Asset Management closed the sale of a Nanjing office building for RMB 2.48 billion, and sold a number of assets last year, including parting ways with an office tower in Shanghai during October for US$1.15 billion.
Combining Balance Sheets as Acquisition Costs Rise
However, some analysts saw advantages for New World and Cheng in the privatisation move. Bloomberg spoke to a Bank of America Merrill Lynch analyst who noted,
“New World Group does not need two separate platforms for doing property in Hong Kong and China. The privatization would allow New World China to utilize its parent’s bigger balance sheet as China property development is still capex intensive if it wants to expand.”
Land prices in China having been rising to historic levels recently as developers compete for the land necessary to launch new projects.
According to New World China’s website, the company has developed 36 major projects in China in 22 cities, and its portfolio spans residential, office retail and hotel projects.
Forbes latest Billionaire List estimated New World’s former chairman, Cheng Yu-tung as having a personal fortune of $16.2 billion, making him Hong Kong’s fifth-richest person (with Li being first), and ranks 54th globally.
Cheng also owns Chow Tai Fook Jewellery Group Ltd., the world’s largest listed jewelry chain.
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