Chinese tycoon eyes property assets to save struggling shipbuilder

Chinese tycoon eyes property assets to save struggling shipbuilder

12:03am EST

By Yimou Lee and Umesh Desai

HONG KONG (Reuters) – An offer by the billionaire owner of Glorious Property Holdings Ltd (0845.HK: Quote,ProfileResearchStock Buzz) to take the company private for HK$4.57 billion($589 million) is seen as an effort to save a struggling shipbuilder he founded that is laden with debt. Zhang Zhirong’s offer came late on Thursday, just hours after the shipbuilder he founded, China Rongsheng Heavy Industries Group (1101.HK: QuoteProfileResearchStock Buzz), said a unit had received a claim from a local government seeking at least 1 billion yuan ($172 million) for an alleged breach of contract, among other things.Rongsheng said in the statement to the Hong Kong stock exchange it would strenuously defend the claim.

Shares of Glorious Property are estimated by many industry watchers to be undervalued and its property portfolio, which includes commercial real estate in prime cities like Beijing and Shanghai, is believed to be ripe to be cashed in.

“They may need money to save Rongsheng after the local government filed a claim against the shipbuilder,” said a Hong Kong-based credit analyst who declined to be named as he was not authorized to speak to the media.

“The company is in a difficult situation and my guess is they will have to sell a substantial portion of their assets. Property assets are a lot easier to sell. It is difficult to sell assets when they are a listed company so hence the privatization.”

Zhang is the founder and biggest shareholder of China’s largest private shipbuilder, China Rongsheng, which has been hit hard by a downturn in the global shipping industry and was forced to seek financial help from the government this year.

Listed in November 2010, Rongsheng was also tied to an insider trading scandal in July last year involving a company owned by Zhang that resulted in a $14 million payment to U.S. regulators.

LUCRATIVE LAND BANK

Shares of Glorious Property, which had a market value of more than $1 billion prior to a suspension in mid-October, surged as much as 40 percent when they resumed trading on Friday, while Rongsheng shares slid more than 4 percent.

Glorious Property’s stock was trading at about a 58 percent discount to its net asset value before trading was suspended and the depressed share price had hurt its reputation among customers, the company said in a statement late on Thursday.

The developer has some potentially lucrative assets in prime locations in China, with a land bank of 15.8 million square meters as of the end of June 2013, of which 12.6 percent is located in Shanghai and 9.6 percent in Beijing, according to China International Capital Corp.

“It’s a commonly held belief among property company owners that their companies are grossly undervalued,” said Steve Wang, a strategist with BOCI Securities in Hong Kong.

“Glorious property has a lot of commercial property and this can be easily monetized. They could sell some of the assets. The stock value is about a 30 percent discount to the asset value. They could monetize some of the asset value.”

Glorious Property bonds were trading down on Friday in contrast to the shares amid worries about transparency. The bonds due 2015 93/94 and its 2018 84.5/86, were down by about six points.

“For debt holders, the lack of transparency due to unlisted status and management’s poor execution do not bode well,” Eric Yu Zhang, analyst at China International Capital Corporation, said in a research report.

“Glorious’ weak fundamentals are further pressured by its stretched balance sheet, reflected in it having the highest funding costs and lowest cash/short-term debt ratio of all the property names we cover.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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