Evergrande crisis inspires shrewd bottom-feeding

HONG KONG, Oct 7 (Reuters Breakingviews) – What to say to a friend whose troubles give you an opportunity? Evergrande’s (3333.HK) shares are suspended while a rival eye taking a $5 billion majority stake in the ailing developer’s property management unit, Chinese media reported. read more Now tycoon Joseph Lau has launched a $250 million buyout bid for the 25% his family doesn’t already own in Chinese Estates (0127.HK). Its shares have been beaten down by its close ties to Evergrande boss Hui Ka Yan, a poker buddy of Lau. Sellers in each case are looking at strong hands that they’ll have little choice but to fold on.

Lau and wife Chan Hoi-wan are offering HK$4 a share for the rump stake in Chinese Estates, valuing the Hong Kong and London-focused property developer at $979 million. The offer price is final. That’s a 38% premium to the last price before their suspension last week. They had been hovering at a 12-year low and are down two-fifths this year alone.

Evergrande’s woes are the prime cause of Chinese Estates’ downtrodden stock. The holdings of its rival’s shares and bonds accounted for a third of its total assets last year. Such is loyalty among friends: Evergrande bought its 25-story Hong Kong headquarters from Lau in 2016 at what was generally considered an above-market price.

Yet Lau and Chan would be getting a bargain since their offer represents a whopping 69% discount to the company’s June 30 net asset value. Say it sold its remaining Evergrande shares at the current price, which would still leave the offer valued at a 47% discount, per Breakingviews calculations. When fellow tycoon Gordon Wu privatized $4 billion Hopewell Holdings in 2019, that deal’s 43% NAV discount was considered eye-wateringly large.

Evergrande itself has little more wiggle room. Its shares and those of its property management unit were suspended on Monday, as was the stock of Hopson Development (0754.HK), another mainland developer, which is regarded as the potential bidder for 51% of the division.

On the face of it, that’s a 44% premium to its shares, if the reports are correct. Cash-strapped Evergrande should be happy with that. Lau’s minority shareholders can’t do much about the price, but they could call his bluff and block the deal. Bottom-feeding is shrewd enough, but the spoils could be more widely shared.

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CONTEXT NEWS

– Developer Chinese Estates on Oct. 6 announced that tycoon Joseph Lau has offered HK$4 a share for the 25% stake in the company his family does not already own. It values the chunk held by minority investors at HK$1.9 billion ($245 million).

– The price represents a 38% premium to the Hong Kong-based firm’s last price on Sept. 30, when the shares were suspended pending news.

– Shares in Lau’s firm recently hit their lowest in more than a decade, largely because of its long-running close links with a troubled fellow developer, Evergrande.Editing by Antony Currie and Katrina Hamlin.

Source- Reuters