Hong Kong-listed Cofco Land is planning to sell up to $500 million worth of shares to third-party investors to fund its $1.6 billion acquisition of properties from parent Cofco group, according to one source familiar with the matter. The remainder will be raised through a loan and Cofco Land will also issue shares to Cofco group.
BOCI, Goldman Sachs and HSBC — the advisers for the asset injection — will be handling the new share placement, which is slated for early November.
The new shares to be sold to investors represent up to a quarter of Cofco Land's $2.1 billion market capitalisation and the company's shares have slumped about 10% since it announced the deal last Friday due to concerns about dilution.
The injection of nine properties into Cofco Land represents the second stage of a deal that started last year, when Cofco Land listed through a reverse takeover of Hong Kong-listed Parkview Holdings and injected $1.8 billion worth of properties.
The move is also part of the government's push to streamline its sprawling state-owned enterprises. Following the sale, Cofco, a state-owned food and agricultural company, will still own some properties but the bulk have been sold to Cofco Land, which will be its dedicated real estate platform.
"Cofco is essentially a food conglomerate and they are carving out a retail portfolio that they have picked up over the last years," the source said.
The Cofco group is helmed by chairman Frank Ning, who joined the group in 2004. Ning was previously president of China Resources, where he was responsible for a similar injection of properties into China Resources Land. Ning was the driving force behind the concept of incubating projects at the parent and injecting them into real estate arms, and he is looking to do the same at Cofco group, a second source familiar with the matter added.
The nine properties comprise six mixed-use properties under the flagship brand Joy City, located in Beijing, Shanghai, Tianjin, Yantai and Shenyang, as well as a commercial property project in Beijing and non-controlling interests of Beijing Cofco Plaza and Shanghai Cofco. They were excluded from last year's reverse takeover as the regulatory approvals were not in place.
The target assets generated revenue of Rmb2.9 billion ($470 million) in 2013 and a net profit of Rmb1.1 billion. The reassessed net asset value as at June 30, 2014 was about Rmb15.9 billion.
The acquisition of the properties will turn Cofco Land into more of an asset manager although it will still own development projects. Moody's expects the acquisition of the properties to improve Cofco Land's recurring income and cash flow and said on Wednesday that this will provide it with a "distinct advantage over other rated property companies in China."
