Cash-strapped real estate developer Greentown China is selling a 2.13 percent stake to Hong Kong’s Wharf and Wheelock for HK$181 million (RMB 148.32 mil), according to an announcement from the buyers on Friday.
The purchase price for the 34,888,500 Greentown China shares was HK$5.2 per share, a 2.8% discount to Greentown’s closing price of HK$5.35 Thursday. Greentown’s shares were suspended from trading on Friday while the announcement was pending.
As part of the agreement, Greentown will also issue HK$2.55 billion worth of convertible bonds to Wharf. Wharf already owns 2.1 percent of Greentown, and if it exercises all of the convertible bonds, its stake in Greentown would rise to 35.1% from 2.1%, which would make it the developer’s largest shareholder, according to the announcement.
Wharf and its subsidiary Wheelock are both controlled by Hong Kong billionaire Peter K. C. Woo.
The sale would provide badly needed cash to Hangzhou-based Greentown whose financial difficulties had earlier compelled it to sell commercial and residential properties in a few Chinese cities to keep itself afloat.
Late last year Greentown sold a stake in a project on Shanghai’s Bund to SOHO China which has subsequently led to legal action by its partner in the project, property developer Fosun. According to a recent report from credit research firm Jefferies, Greentown reported cash holdings of RMB 5.9 billion at the end of 2011. However, it has RMB 16 billion in short-term debt due this year.
Should Wharf gain control of Greentown it would mark the largest consolidation in China’s real estate market at the corporate level after more than two years of policy tightening.
Over-leveraged developers such as Greentown are increasingly finding it necessary to sell assets to their better funded rivals as buyers continue to stay away from the markets and housing prices fall.