Evergrande backer Chinese Estates to go private after plunge

By Venus Feng, Shawna Kwan and Blake Schmidt

Chinese Estates Holdings Ltd., controlled by a long-time backer of embattled developer China Evergrande Group, offered to take the company private after the stock plunged to an 18-year low.

The Hong Kong real estate firm owned by the family of billionaire Joseph Lau, agreed to buy out minority shareholders for HK$4 apiece, or HK$1.91 billion ($245 million) for the 25% stake, according to a Hong Kong stock exchange filing on Wednesday. That represents a 38% premium to the current price. The stock soared as much as 31% on Thursday morning after resuming trading following a week-long halt.

The Lau family already controls about 75% of the company. Going private represents the biggest retreat yet by a long-time backer of Evergrande and its billionaire Chairman Hui Ka Yan -- Lau is part of the so-called ‘Poker Club’ of tycoons who have backed Hui’s ventures over the years.

Read more: Property giant China Evergrande suspends Hong Kong market trading

The developer’s stock has spiraled on concern that an Evergrande collapse could spill over into the property sector in China and Hong Kong. Chinese Estates had been a major shareholder of Evergrande before paring its stake beginning in August, and said in its statement Wednesday that it has concerns over whether the Shenzhen-based company can correct course.

“Directors are cautious and concerned about the recent development of China Evergrande Group including certain disclosures made by China Evergrande Group on its liquidity,” according to the statement. The group is considering possible consequences “in the event that the remedial measures said to have been taken and to be taken by China Evergrande Group could not be effectively implemented.”

The company said it could realize a loss of HK$10.4 billion if it sells the rest of its shares in the battered mainland developer this year, after estimating the potential losses last month to be about HK$9.5 billion.

Chinese Estates soared 33% to HK$2.90 in early Hong Kong last week before it was halted pending the announcement to the bourse. The stock was up 29% at HK$3.73 at 10:04 a.m. on Thursday.

Solar Bright, a British Virgin Islands company ultimately owned by Lau’s wife, Chan Hoi-wan, is making the offer to take the company private. The bid is in concert with parties including Chan’s mother and Lau’s brother and sister. “There are many uncertainties including higher interest rates in the real estate and financial markets, making the company’s share price unpredictable,” Chan, who is chief executive officer of Chinese Estates, said in a statement Wednesday night. “This has posed high risks for investors.” Her decision to privatize the company is to “provide an opportunity for minority shareholders to cash out” and to transfer all the risks to herself, she said. Lau, who’s worth $6.7 billion, according to the Bloomberg Billionaires Index, resigned as chairman of Chinese Estates after he was convicted of bribery and money laundering in Macau in 2014. Chan, a former entertainment reporter, was appointed CEO in February.

The firm that Lau took control of in 1986 develops homes in Hong Kong and commercial properties including office towers and shopping malls in the former British colony, mainland China and the UK Its business has been hurt by the coronavirus and posted a loss in the first half of this year, but it also faces a major threat from its stake in Evergrande.

Chinese Estates bought about 6.5% of Evergrande at an average cost of HK$15.80 a share between 2017 and 2018, when the housing giant was expanding. The stock traded recently at HK$3. The group and Chan owned almost 9% of Evergrande combined at the peak. Chan also subscribed to share sales by Evergrande’s property services unit last year and its new energy vehicle arm in March. The company still has a 4.4% stake.

The market value of Chinese Estates stood at about $710 million before the trading halt. The privatization proposal values its entire issued share capital at HK$7.63 billion ($980 million), according to the filing.

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