New World seals HK$18.5b deal with Abu Dhabi group
Updated: 2015-05-01 07:32
By Felix Gao in Hong Kong(HK Edition)
Sale of stakes in three prime HK hotels linked to poor outlook for tourism
New World Development Co Ltd - controlled by the family of tycoon Cheng Yu-tung - will sell part of its stakes in three prime Hong Kong hotels to a joint venture between the conglomerate and the Abu Dhabi Investment Authority (ADIA) in a HK$18.5-billion deal that has been linked to the gloomy outlook for the city's tourism sector.
New World will receive HK$10 billion in cash for injecting the Grand Hyatt Hong Kong, Renaissance Harbour View and Hyatt Regency Tsim Sha Tsui into the 50:50 joint venture with ADIA, the company said on Thursday.
A third-party valuation shows the three hotels had a market value of HK$21.3 billion as of March 1 this year.
New World said it will use the proceeds for development projects, and expanding its land reserves and working capital.
New World's share price surged as much as 4.2 percent - the biggest gain in more than 18 months - and added 2.2 percent to close at HK$10.3 on Thursday.
The sale follows New World's previous attempt to spin off the three hotels in a Hong Kong share sale in 2013, which sought to raise up to $1 billion, but was aborted because of market volatility.
"The transaction offers the best of both worlds for our shareholders - we continue to retain long-term interests in these prime hotel assets in Hong Kong while, at the same time, recycling capital to pursue other value-enhancing investments," New World Vice-chairman Adrian Cheng Chi-kong said.
Joyce Kwock, an analyst at Credit Suisse Group AG, said New World wants to actively buy land but doesn't want to increase its gearing, and the sale makes sense as hotel operations have become more difficult.
According to the Hong Kong Tourism Board, the city's hotel-room occupancy in the first quarter of this year fell to 86 percent from 90 percent a year earlier, while the March data retreated 9 percentage points to 84 percent. Visitor arrivals in March dropped by 8.7 percent compared with a year ago.
"In the past, Hong Kong's tourism had benefited from the Individual Visit Scheme. But now, it has been hit by policy changes. I believe one of the reasons for New World's sale is the gloomy outlook for the hotel business," said Ben Kwong Man-bun, head of research at KGI Asia Ltd.
In mid-April, Hong Kong scrapped multiple entry permits for Shenzhen residents and replaced them with one-visit-a-week permits.
New World had stakes in 18 hotels on the mainland and in Hong Kong and Southeast Asia at the end of last year, according to the company's interim report. Its hotel revenue posted a 19.7-percent decline to HK$361.4 million in fiscal 2014 over the previous year.
Lifestyle International Holdings Ltd, which owns the Sogo department stores, sold a 19.9-percent stake to the Qatar Investment Authority for HK$4.78 billion in October last year.
Dancers perform on a platform in the atrium of the K11 Art Mall in Shanghai, operated by New World Development Co Ltd. The proposed HK$10-billion cash injection from Abu Dhabi Investment Authority is hailed by investors of New World Development. Tomohiro Ohsumi / Bloomberg
(HK Edition 05/01/2015 page6)