Translated by Andrew Vanburen from: 新世界發展: 暴风中的集資 (中文翻譯, 請閱讀下面)
CHENG YU-TUNG is a well-known figure in Hong Kong's high-flying property sector, and his moves -- typically textbook and conservative -- are closely followed by industry peers.
Born in 1925 in the southern Chinese province of Guangdong, the Hong Kong billionaire has extensive property interests in both Hong Kong and neighboring Taiwan.
Hi wealth originally came from his Chow Tai Fook jewellery business and he has a good record of holding onto it -- and multiplying it.
Therefore, when his New World Development Co Ltd (NWD: HK: 17) and unit New World China Land Ltd (HK: 917) recently offered a two-for-one share financing deal to help raise cash, even as more and more EU nations teeter on the brink of bankruptcy, headlines were made.
The fund-raising strategy also comes not long after the group’s year-to-June results were released in which a shaky balance sheet was also exposed to public scrutiny.
Not including New World Department Store China Ltd (HK: 825) – which is also under the broad golf-esque umbrella of New World group – total net debt of Mr. Chen’s New World Development stood at 34.99 bln yuan, up 29.1% from a year earlier, while net debt of New World China shrank 2.7% to 8.46 bln.
NWS Holdings Ltd (HK: 659), a new creation of the New World group, shifted during the period from a net cash position to a net debt of 2.16 bln yuan.
On the surface, it appears quite clear that the reasons outlined above have prompted the group to reach out to shareholders at this time for fundraising.
However, upon closer inspection, a different story unfolds.
New World Development is armed with cash and deposits totaling over 24.09 bln yuan, a sum not only 2.09% higher than a year earlier, but significantly higher than the 6.63 bln yuan level witnessed in 2004 – just prior to its five-for-two stock swap carried out at the time.
And over the past seven years, total net assets jumped 90.75% to 54.4 bln yuan as of the end of June 2011.
As can be seen from this trend, New World Development took advantage of the strong economic growth in Mainland China since 2004 to raise funds while the raising was good, an also managed to essentially double the size of their balance sheet into the bargain.
But it is also worth bearing in mind that the net worth of the Cheng family in 2004 stood at nearly 1.9 bln yuan.
And over the past seven eventful years, when the property sector was one of the top growth stories in the PRC – as well as 14 halves of dividend activity – this personal net worth had ballooned to over 3.58 bln yuan.
Concurrently, total issued shares over the period rose to the current pre-two-for-one offer level of 1.616 bln shares versus 1.219 bln seven year ago.
More importantly, Cheng’s pre-swap deal share holdings in 2004 in the company stood at 870 mln shares, a figure that has since been doubled.
According to the announcement at the time of the share offer in 2004, New World Development’s shares were priced at 8.7 yuan per. This would put Zheng’s personal assets held in the company at around 7.554 bln yuan.
Now this figure – prior to the latest two-for-one offer – stands at 11.993 bln yuan, when each share is valued at 7.42 yuan.
On the surface, Cheng’s shareholding value in New World Development grew by some 4.44 bln yuan, which represents a better rate of return than the 23.85% earned by pure cash dividends over the period.
But we should not overlook the fact that if the costs of the share offers over the years are added in, Cheng paid some 1.025 bln yuan for the New World Development fundraising schemes.
In total, the Cheng dynasty poured between 4.6 bln to 5.1 bln yuan of its own money into the entire group to cover the costs of the share-swap fundraising activities.
Does this mean that these fundraising strategies and ones similar over the years will become (or already are) loss-leader positions meant to bring in more shareholders and boost land-bank accumulation capital?
Time will only tell.
But one thing is for sure.
With the volatile state of the PRC’s massive property sector, the propensity of the government to step in when the going gets rough, a slew of brokerages saying the high-flying sector is due for consolidation to weed out the infirm, as well as on-the-ground price declines for both residential and commercial real estate... the success (or failure) of Mr. Cheng’s latest fundraising campaign is worth following closely.
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