Hong Kong's property market may be wobbling but some local property magnates appear hot to trot to back themselves against the souring sentiment, notably Gordon Wu, who is now looking to lead the biggest listed property company privatisation ever seen in the city.
As chairman of Hopewell Holdings, Gordon heads a family consortium that late on Wednesday offered to take the property and infrastructure group private for HK$21.26 billion ($2.7 billion).
According to a stock market filing, the consortium is offering to buy the 60%-plus stake it does not already own at HK$38.8 per share. The cash offer represents a 47% premium over the stock’s closing price on November 30, when it last traded, resulting in a 23% share-price boost on Thursday.
Despite the trade war between the US and China and rising interest rates, which have dented confidence in Hong Kong’s property market, Gordon believes offering such a fat premium is still money well spent, a person familiar with his thinking said.
But then families in Hong Kong are also known to fear the stigma of a failed deal, which can damage reputations within the city's close-knit business elite.
Curiously, Gordon's son and heir-apparent, Thomas Jefferson Wu, who is also a Hopewell shareholder and its deputy chairman, is not part of the buying consortium.
Under the proposed deal Gordon, who is 83 years old, would be better placed to escape the limelight created by running a publicly listed company.
Hopewell has several Hong Kong properties in the early stages of development including the Hopewell Centre II and the Hill Side Terrace Cluster. Such multi-year projects involve significant development and regulatory risk, which could easily spook public market investors.
And all the more so when a near-15 year bull run in property prices is showing signs of flagging. Prices of private homes across Hong Kong dipped in August after local mortgage rates rose and JLL Asia Pacific forecasts that house prices will fall by 15% in 2019.
A large chunk of that pessimism was already reflected in Hopewell's share price ahead of the take-private offer.
But at 54%, the company's discount to its net asset value (NAV) was slightly wider compared with its developer peers, on average -- something Gordon sees as misrepresenting the company’s true value, according to the person familiar with his thinking.
PREMIUM ANALYSIS
The 47% premium offered looks generous based on past precedents. The median premium for take-privates in Hong Kong is around 33%, but that falls to around 20% to 25% for larger deals, according to analysis from financiers contacted by FinanceAsia.
However, equity analysts at JP Morgan think Gordon may be getting a bargain as the share offer price is 10% lower than their fair-value estimate of HK$43, which is based on a 0.67x price-to-book ratio of the ex-cash book value, plus the net cash per share on Hopewell's balance sheet.
The offer price also represents a 33% discount to JP Morgan's own NAV estimate for the company, placing a question mark over whether the deal will gain full shareholder approval.
"The current offer price is not attractive enough to make sure there will be less than 10% objection to the privatisation offer," said Cusson Leung, an analyst at JP Morgan in a note to investors.
Gordon’s timing appears canny having secured bank loans to finance the privatisation when other property magnates have struggled of late to secure debt finance as sentiment sours on real estate. Notable in this respect is Chinese entrepreneur Chen Chang Wei’s recent struggles to finance the HK$15 billion ($1.92 billion) purchase of two Hong Kong office towers.
Gordon, meanwhile, has mandated Citigroup as financial adviser to the bidding consortium as well as sole underwriter and mandated lead arranger and bookrunner on the consortium’s debt financing.
Citi will syndicate the debt to other banks and early expressions of interest suggest the process should go smoothly given lenders’ confidence in the quality of the property portfolio, a person familiar with the matter said.
FAMILY BUSINESS
The buying consortium is 76.15% controlled by Gordon and his wife Ivy Wu and is made up largely by members of the Wu family. At present, the couple owns 16% of Hopewell and the consortium collectively controls 36.93% of its stock. Gordon and Ivy are the parents of consortium members June and Carol and the uncle and aunt of Roger, David, and Guy Wu.
Rather oddly, 46-year-old Thomas Jefferson Wu, who owns 3.34% of the company and is widely considered Gordon’s heir, is not part of the bidding consortium.
Thomas, a US-educated ice-hockey enthusiast, is a third-generation tycoon and appears happy to take the money generated by the sale of his stake in Hopewell to the consortium, according to one person familiar with the matter.
To be sure, Thomas could still inherit the business in the future.
Hopewell has been listed on Hong Kong’s stock exchange since 1972, during which time Gordon has built it into a property empire spanning hotels to power plants.
Hopewell’s infrastructure projects include the Shajiao B power plant in Guangdong, although it completed the sale of its toll roads in April. It also owns numerous buildings in Hong Kong such as its eponymous 64-storey skyscraper Hopewell Centre.
Gordon was an early proponent of a bridge between Hong Kong and the mainland in the 1980s and lobbied for a public-private partnership. The 55-kilometre Hong Kong–Zhuhai–Macao Bridge connecting the three major cities on the Pearl River Delta is the longest sea-crossing construction on earth and was finally completed in February.
“He is a visionary,” said Joseph Ferrigno, the founder of the Asia Mezzanine Capital Group, who has had some business dealings with Gordon in infrastructure.
Gordon certainly thinks big. His bid implies a total equity value of HK$33.7 billion ($4.3 billion) making it the largest take-private of a Hong Kong real estate company ever, according to data from Dealogic.
