Mainland developer Sunac China Holdings’ property management unit has terminated an October deal to acquire a services affiliate of competitor Modern Land, which announced a large offshore debt default less than 20 days after the preliminary agreement was struck.
Hong Kong-listed Sunac Services Holding had entered a deal on 7 October to acquire and privatise First Service Holding, controlled by the Zhang family behind Modern Land, for RMB 2.27 billion ($360 million). But Modern Land failed to repay the principal and interest due on a $250 million, Singapore-listed dollar bond on 25 October, which the Sunac unit said forced it to reconsider the transaction.
“The liquidity problems with Modern Land directly result in material uncertainty regarding the realisability and sustainability of First Service Holding’s business obtained from Modern Land as well as the collectability of its receivables from Modern Land,” Sunac Services said Monday in a filing with the Hong Kong stock exchange.
According to Sunac Services, a reduction in the consideration based on changes in the situation had been agreed in writing by the share sellers, who “suddenly reversed” at the 31 December deal deadline, resulting in a formal agreement not being signed.
First Shares Punished
First Service chairman Zhang Peng issued a statement late Monday confirming that the offer by Sunac Services had lapsed on 31 December and that his company had requested a resumption in trading of its Hong Kong-listed shares after a halt was ordered on Monday morning.
First Service’s stock price had surged 58 percent when the acquisition deal was announced on 1 November, but shares promptly plunged 40 percent after trading resumed Tuesday.
In the wake of Modern Land’s October default, Zhang — who serves as president of the Beijing-based developer — said the group would continue to evaluate its financial condition and cash position and would “engage independent financial advisors soon”.
On 11 October, Modern Land had asked investors for a three-month bond payment extension, proposing to repay a portion of the $250 million debt to avoid default, but the developer ultimately scrapped the scheme, saying the plan would not be in the best interest of the company and other stakeholders.
Tianjin-based Sunac — which has its own hands full with RMB 3.5 billion in domestic bonds becoming puttable in January and another RMB 4 billion becoming puttable in April — is the latest mainland developer to call off a property management deal after China Evergrande cancelled plans to sell a majority stake in its own services unit.
The world’s most indebted developer had planned to sell 50.1 percent of Hong Kong-listed Evergrande Property Services for $2.6 billion, the Wall Street Journal reported in October. But Evergrande said the deal was junked after the purchaser, Hopson Development Holdings, failed to meet the prerequisite to make a general takeover offer for shares of the unit as required when buying 30 percent or more of a public company.
Hopson countered that it had been ready to buy the stake but that other parties to the deal had made unacceptable requests to change the terms, including a demand that Hopson send all the funds directly to Evergrande rather than to the property management unit.
Another troubled mainland developer, Kaisa Group Holdings, has been shopping its entire 67.18 percent stake in property management unit Kaisa Prosperity Holdings, Reuters reported in October.