Billionaire Lau Family Offers to Take Chinese Estates Holdings Private After Stock Plunges

(Bloomberg) — 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, offered 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. The Lau family already controls about 75% of the company.

The family preparing to go 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.

Evergrande, one of China’s biggest real estate developers, warned recently that it has cash-flow issues, may default on debt payments, and is having trouble finding buyers for some of its assets.

The developer’s stock has plunged by some 85% this year on concern that an Evergrande collapse could spill over into the property sector in the Chinese mainland and Hong Kong. Chinese Estates had been a major shareholder of Evergrande before paring its stake beginning in August, and said in a statement Wednesday that it has concerns over whether the sliding Evergrande 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 lose 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.

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.

Lau, who is 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 chief executive 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 U.K. Its business has been hurt by the coronavirus and it 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.

Chinese Estates soared 33% to HK$2.90 in Hong Kong last week before trading in its shares was halted pending an announcement to the bourse. The shares are due to start trading again on Oct. 7, the filing says.

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

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