Hong Kong’s billionaire Cheng family is offering to buy the NWS Holdings Ltd. shares it doesn’t own in a HK$35.5 billion ($4.5 billion) deal that would help lower debt at its property conglomerate.
The transaction would in effect shift cash from the family’s investment holding company to its builder New World Development Co., which owns a majority stake in NWS and stands to receive about HK$21.8 billion from the disposal.
New World, founded by the late billionaire Cheng Yu-Tung, is one of the most indebted Hong Kong developers among its larger peers, with a net debt-to-shareholder-equity ratio of about 47%. The company’s net gearing would decrease to around 42% after the deal.
“The ultimate beneficiary is New World Development,” said Louis Tse, managing director at brokerage firm Wealthy Securities Ltd. “The point is the interest rate is going to get higher and higher, and New World has quite a bit of debt to repay.”
Chow Tai Fook Enterprises, the property dynasty’s investment holdings flagship, made an offer of HK$9.15 per share, according to a statement to the Hong Kong stock exchange on Tuesday. The offer is a 14.5% premium over the last closing price.
Chow Tai Fook may exercise its right to take the company private, if certain conditions are met, including reaching the required threshold of acceptances, the statement shows.
Shares of New World Development Co., founded by the late billionaire Cheng Yu-Tung, rose as much as 10.1% as of 11:05 a.m. local time as it resumed trading Tuesday. NWS Holdings also surged.
New World’s net gearing ratio stands out compared with 19% for Sun Hung Kai Properties Ltd. and 6.4% for Swire Properties Ltd., according to data compiled by Bloomberg.
Hong Kong’s developers are grappling with a property market that is in a rare downturn, with higher interest rates expected to continue weighing on sales. Major developers have resorted to offering discounts and various perks to boost sales.
In New World’s first-half earnings, the developer saw underlying profit fall 14% to HK$3.36 billion due to Covid-19 disruptions. The company then said that its deleveraging plan will include capex optimization, disposals of non-core assets and a dividend reset.
“The deal should strengthen NWD’s cash flow position and give NWD more flexibility around refinancing,” said Jefferies LLC analyst Sam Wong. However, the loss of profit and dividend from NWS will take time for the remaining businesses to offset, and the reduction in gearing will be less than expected after the payout of the special dividend, he said. “I wouldn’t call this a super sexy deal.”
New World, with a business spanning construction, insurance and hotels, recently sold a hotel and an office property. It had a total asset value of about HK$621.9 billion at the end of last year, according to its website.
Cheng Yu-Tung’s eldest son Henry Cheng, 76, is the chairman of the company, while the founder’s grandson Adrian Cheng, 44, is the chief executive officer.
NWS focuses on toll roads, construction and insurance, while it also manages a portfolio that includes logistics to facilities management. It sold its public bus routes and ferry business in 2020.
Some of New World Development’s dollar bonds are poised to post the biggest gains since January after the offer. Its unit’s 4.125% perpetual bond gained 2.7 cents on the dollar to 70.1 cents, the most in almost six months, according to Bloomberg-compiled prices as of 9:13 a.m. in Hong Kong.
HSBC Holdings Plc, BOCI Asia Ltd. and ING Bank NV are advising on the deal.
--With assistance from Adam Haigh and Fion Li.
(Updates with details about the deal, analyst voices throughout)
