Chinese billionaire Wang Jianlin (王健林) has scored a much-needed victory with the buyout of his Hong Kong-traded real-estate arm, Dalian Wanda Commercial Properties (大連萬達集團).
The biggest loser is undoubtedly Hong Kong, for whom the loss of such a big and important company raises questions about its value as a funding source for Chinese firms. Whether investors who backed the bid can be considered winners will depend on Wang’s success in relisting Wanda on a Chinese exchange.
Yesterday, Wang got shareholder approval to take Wanda private, the latest in a series of overseas-traded Chinese companies — most in the US — that have sought to withdraw their stock with the aim of listing back home, where valuations are much higher.
Despite misgivings from some shareholders, including the asset-management arm of APG Groep NV, which wanted a higher price than the HK$52.80 cash bid, Wang won support from the minimum 75 percent of minority shareholders needed.
The deal breaks a string of setbacks for Wang, whose AMC Entertainment Holdings Inc was forced to raise its offer for Carmike Cinemas in the US last month at a time when box-office takings at home have been suffering.
Backers of Qihoo 360’s (奇虎360) US buyout can only look on with envy at Wanda’s five-month exit from the Hong Kong exchange; the Internet security firm has been waiting for eight months.
For Hong Kong, a city that prides itself on being the go-to destination for large Chinese companies, the departure of a real-estate developer with a US$30 billion market capitalization represents a challenge. Wanda is not only China’s largest landlord, but is also on track to overtake the US’ Simon Property Group Inc to become the world leader by rentals next year, according to Citigroup.
The deal is Hong Kong’s biggest-ever privatization and the concern for Hong Kong Exchanges and Clearing, operator of the territory’s stock exchange, must be that it will spur copycats.
Wanda rival Evergrande Real Estate Group Ltd (恆大地產集團) began buying into two Chinese-listed property companies in April, sparking talk that the indebted firm was preparing to buy out its Hong Kong-traded shares and list via the back door in China.
Such exits would be doubly disheartening for Hong Kong at a time when initial public offerings have slowed and the benchmark Hang Seng Index remains about 20 percent below last year’s peak, despite its recent rally.
Wanda was trading at 6.6 times last year’s earnings as of Friday’s close, while Evergrande was on a multiple of 7. The Shanghai Stock Exchange Property Index trades on a price-earnings ratio of more than 12 and has climbed more than 20 percent from its January low amid a recovery in Chinese home prices and sales.
Broader indexes show a persistent valuation gap of more than 40 percent between Hong Kong and Chinese stocks.
Securing the bumper payday that comes from moving a listing from one market to the other might be more easily said than done. About 800 companies await approval from the China Securities Regulatory Commission to sell shares in China, a queue that would take years to clear. Reverse mergers, a popular route to a Shanghai or Shenzhen listing for those impatient with the regulatory process, have been reined in of late.
While China’s market for initial public offerings is the hottest it has ever been, the securities regulator is allowing only small companies past the gate. The average size of this year’s offerings has dwindled to US$88 million, the smallest since 2005, Bloomberg data showed this month.
That is bad news for a company the size of Wanda, unless Wang’s status as one of China’s richest men helps to sway the minds of regulators.
Backers of the buyout — slew of private investors in China — can hardly lose: Wanda has promised shareholders a 12 percent guaranteed annual return after two years if the company fails to list by then.
Given Wang’s comment that Wanda is worth at least three times the value it has been assigned by investors in Hong Kong, that is unlikely to be enough of a consolation.
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