Dalian Wanda Group, controlled by China's richest man Wang Jianlin, is offering HK$34.5 billion ($4.4 billion) in cash to buy out its Hong Kong-traded commercial property unit, as it looks to take the business private less than two years after a $3.7 billion listing.
The proposal comes after the shopping-mall developer slashed it projection for 2016 contracted sales by almost 40% to Rmb100 billion ($15.2 billion) as it seeks to pull back from tier-3 and tier-4 cities, where the build-up of inventory is most severe after years of excessive investment.
People familiar with the matter say the long-anticipated move reflects the far higher valuations available in China and the timing of the December 2014 IPO, which left the company with a disappointing valuation. Attention now turns to a series of hurdles that stand in the way of the privatisation plan, including concerns China's clampdown on moving money offshore and increasing scrutiny by China's regulators of similar deals could slow the process down.
In a statement to the Hong Kong stock exchange on Monday, Wanda said it would offer HK$52.8 per share in Dalian Wanda Commercial Properties, 10% higher than its first order price of HK$48 and 3% higher than the price before trading was suspended on April 22.
Despite the price increase, shares fell 0.75% to finish at HK$49.25 apiece after trading resumed on Monday.
The property-to-investment conglomerate plans to relist in China at a much higher valuation, it says, in an effort to create value for shareholders.
"The Hong Kong-listed unit is substantially undervalued and must proceed with the privatisation," Wanda founder Wang said in a May 22 interview with state broadcaster CCTV. "It is very important that we don't upset our investors and friends because we have been always been making money for them."
According to a person briefed on the discussions, Wanda plans to list the share in Shanghai as quickly as possible.
In a pitch document to Hong Kong investors, Wanda said domestic investors paid an average 29 times full-year estimated earnings for 2016 for four developers with interests in free-trade zones and industrial parks. That compared with the seven times estimated 2016 earnings paid by overseas investors in Wanda Commercial Properties.
Data provider Dealogic said the $4.4 billion privatisation proposal would make it the largest privatisation in Hong Kong history.
Go-private deals intended to bring companies listed in Hong Kong or New York to relist in Shanghai or Shenzhen have been under the spotlight after China's stock market regulator voiced concerns about such transactions. "We are reviewing those take-private deals and their impact to the China's stock markets," China Securities Regulatory Commission said in a briefing on May 6.
"There are uncertainties on how long these investors can get their return through the A-share listing because it could be a lengthy process, particularly when backdoor listing is banned in China now," the senior banker commented.
Wanda secretary Chris Hui said the company was apply for a A-share listing in China, but he declined to comment on the timetable for the planned IPO.
At least 600 listing candidates are seeking to list in China's two stock makets in Shanghai and Shenzhen. An average of 10 companies per month were given the permission to list their shares, which may take more than 6 years to clear the backlog.
In addition to the burdensome IPO process, Wanda may indirectly by impacted by Beijing's effort to slow capital outflows, according to bankers familiar with the company.
"The privatisation process has been complicated by China’s clampdown on money moving offshore,” said one of the people, who requested anonymity because of the sensitivity of the issue.
The Chinese authorities have stepped up their crackdown on cross-border money transfers, as the country's foreign currency reserves fell to $3.2 trillion, from a peak of $3.99 trillion in June 2014.
Another person familiar with the matter agreed that "The privatisation process has been complicated by China’s clampdown on money moving offshore. That is partly why it has taken some time to figure out."
The person said it was unlikely Wang would have announced the plan unless he was confident of moving the money offshore.
Wanda's transaction is still subject to shareholder and regulatory approvals, the company said.
Dalian Wanda Commercial Properties, China's largest business property developer by sales, raised $3.7 billion in its Hong Kong listing, making it the city's largest IPO in2014.
CICC is advising Wanda on the take-private transaction. The Beijing-based investment bank and China Merchants Bank are providing loan facilities to Wanda's privatization plan.
More take-private deals
Besides Wanda, at least two Hong Kong-listed companies are mulling listing their shares in China either through a backdoor listing or by going private and relisting.
Evergrande Real Estate may consider taking itself private as chairman Hui Ka-yan felt the valuation of its Hong Kong-traded shares was being distorted, according to an April 18 research note by Citigroup.
In April, Evergrande acquired 53% of Shenzhen-listed developer Calxon Group for Rmb 3.6 billion, prompting investors queries about its desire to list itself through a backdoor listing.
"The acquisition allows Evergrande to quickly access China's stock market," a Hong Kong-based fund manager told FinanceAsia. "More property developers are considering this option because of the lofty valuation of mainland-traded shares."
Meanwhile, Chinese sportswear maker Peak Sports is considering taking its Hong Kong-traded unit private, and the final decision has yet to be made.
The proposal is in its early stage, Xu Jiangnan, chairman of Peak Sports, said in a statement to the Hong Kong stock exchange on May 24. Xu owns more than 60% of the company.
In an April report by UBS, Peak was among 38 Hong Kong-listed Chinese companies the investment bank identified as potential delisting candidates because they shared similar characters with Wanda.
The Swiss bank shortlisted companies that had a negative share price performance since listing, a price-to-earning multiple below 30 times and founders own more than 40% of the companies.
Additional reporting by Alison Tudor-Ackroyd and Danny Leung