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Burned by Evergrande losses, Hong Kong tycoon offers to take developer Chinese Estates private for US$245 million

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The family of Hong Kong magnate Joseph Lau Luen-hung is planning to take Chinese Estates Holdings private and on Wednesday offered an 83.5 per cent premium for shares held by minority owners.

The family is offering HK$4 apiece to public investors in the Hong Kong-listed company, whose stock closed at HK$2.18 on September 28, the last trading day before it was suspended, according to a stock exchange filing. It will shell out a combined HK$1.9 billion (US$245 million) for the shares.

Lau's family currently controls about 78.6 per cent of Chinese Estates and, based on its offer price, values the company at HK$7.63 billion.

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The purchase offer comes after Chinese Estates incurred steep losses from selling its shares in debt-ridden China Evergrande Group, whose founder Hui Ka-yan is desperately trying to avert a default and save his Shenzhen-based flagship from collapsing under more than US$300 billion of liabilities.

Chinese Estates said on Wednesday that the losses arising from the sale of Evergrande shares had exacerbated its fundamentals. Chinese Estates lost HK$1.38 billion after dumping 108.9 million shares in the Chinese developer in the open market between August 30 and September 21, according to the filing.

The family of Joseph Lau Luen-hung (right) controls about 78.6 per cent of Chinese Estates. Photo: Felix Wong alt=The family of Joseph Lau Luen-hung (right) controls about 78.6 per cent of Chinese Estates. Photo: Felix Wong

Chinese Estates sold the Evergrande shares in the open market for HK$246.5 million, or HK$2.26 each on average. The Evergrande stock was changing hands at HK$3.42 on average during that period, according to Bloomberg data.

The average disposal price in August and September represents an 86 per cent discount on its average purchase price.

The company said it expected further losses from its sale of Evergrande shares and that an uncertain business outlook could further weigh on Chinese Estates stock, which has already shed 23 per cent this year. It said the privatisation proposal give its minority owners the opportunity to dispose of their shares without any further risks.

"It is observed that the business environment in which the company operates is challenging and uncertain. The Covid-19 pandemic continues since early 2020 and shows no sign of significant improvement in the near future. Its social and economic impacts are major and unprecedented," the company said.

The disposal and possible exit by Chinese Estates is a significant moment in its ties with Evergrande's Hui. Chinese Estates has been either a buyer or a seller in every significant financial transaction by Evergrande since it went public in November 2009.

Troubled tycoons: Evergrande's Hui Ka-yan and ally Joseph Lau through the years

Chinese Estates, the sole cornerstone investor in Evergrande's initial public offering 12 years ago, held 751.09 million Evergrande shares, or 5.66 per cent of the Shenzhen-based developer, as of August 31. It paid HK$13.59 billion to top up its Evergrande stake in 2017 and 2018, picking up a total of 860 million Evergrande shares at an average price of HK$15.80 each, according to filings.

Lau's family said on Wednesday that it would sell more Evergrande shares either through block trades, or in a series of transactions "depending on the prevailing market conditions".

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2021 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2021. South China Morning Post Publishers Ltd. All rights reserved.