Jiangnan Group may follow Dalian Wanda, Peak Sports and TCL by delisting from the Hong Kong stock exchange. All of these companies hope to relist on Chinese exchanges, although none have yet done so.
Jiangnan’s defection from Hong Kong, where it is the only listed mainland cable and wire manufacturer, highlights the bourse’s losing companies from both China and around the region.
The group’s parent company, Power Heritage Group, floated the idea of taking Jiangnan private via a scheme of arrangement after the market’s close on Monday, October 17. It did not disclose any offer price, nor offer a time frame.
This lack of clarity will keep the share price volatile, analysts said, but for the deal to succeed the offer price will have to be around HK$1.95. That implies a 34% premium to its Tuesday close of HK$1.45.
Indeed, the stock price spiked up 13.7% on Tuesday’s open – the first available time for the market to react – to HK$1.65, before it then retreated back to HK$1.45, making it virtually flat to the previous day’s close. The stock’s turnover that day also surged to more than double its three-month average.
“We see the private offer price is more likely to be higher than the placement price to get approval from current shareholders,” according to a Shenwan Hongyuan Securities’ analyst report.
CIMB’s analysts also wrote in a note to investors that they believe a reasonable offer should not be less than HK$1.95, the price of the company’s latest placement.
Motives
As Jiangnan stock is trading at a deep discount to its mainland peers, analysts believe that the motivation for privatization is mainly to boost its value.
Jiangnan’s two major competitors are Qingdao Hanhe Cable and Far East Smarter Energy. They are both listed in the mainland A-share market. While Hong Kong-listed Jiangnan is trading at a multiple of 8 times earnings and a book value of 0.97 times, its A-share peers are trading between 20 to 30 times earnings, with price–to-book ratios above 3.
“It is very obvious that Jiangnan is trying to privatize and delist from Hong Kong for future potential re-listing in the mainland markets for a better valuation,” said a mainland-based fund manager. “But in order for them to do so, they better offer a decent premium to attract investors this time.”
The owners
Jiangnan Group was first listed in Hong Kong in 2012 at HK$1.42. It has undertaken four additional equity fund raisings in the past two years, in order to finance acquisitions and business expansion. Two of these deals were done through private placements at a fixed price of HK$1.95, and raised over $200 million in total.
The CEO of Power Heritage, Chu Hui, currently holds 35% of Jiangnan Group directly and indirectly. While he personally owns 4.15%, Power Heritage – which is 100% owned by Chu Hui – holds 31% of Jiangnan Group.
No other shareholders own more than 5% of the company. The second largest shareholder is Value Partner, with 4.97%, followed by China Asset Management, DNB Asset Management and Fidelity, which own 0.6% each.
Under Cayman Island law, which governs Jiangnan Group, the vote to take the company private must be attended by more than 50% of shareholders, and approved by at least 75% of those present.
Among those mainland companies that have recently chosen to delist from Hong Kong Exchanges and Clearing are Peak Sport, which went private for $310 million in July; Dalian Wanda for $4.4 billion in September; and TCL Communication for $375 million, also in September.
Moreover, a diverse list of overseas-based companies have also delisted from the Hong Kong bourse, including Malaysia’s Nirvana (funeral services), Brazil’s Vale (mining) and Macau’s Melco Crown (casinos).
