Dow Jones Business News -- December 4, 1996
HK: China Resources To Secure 10% Of HIT For HK$3.50 Bln
AP-Dow Jones News Service
HONG KONG -- China Resources Enterprise Ltd. said Wednesday it plans to acquire a 10% stake in Hong Kong's largest port operator from its parent for $3.50 billion (Hong Kong).
In a published announcement, the China-backed conglomerate said that in a mixed shares and cash package, China Resources (Holdings) Co. Ltd. will receive HK$2.25 billion and 111.1 million new shares for its stake in HIT Investments Ltd.
HIT operates container terminals 4, 6, 7 and has a 50% stake in container terminal 8 at Hong Kong's port. The company, which is 78% held by conglomerate Hutchison Whampoa Ltd. also operates container terminals in Yantian, southern China.
The acquisition will be partly financed by a second issue of 90.9 million new shares to China Resources (Holdings) at HK$11.25 following a placement, on its behalf of an identical number of existing shares, by Baring Brothers Ltd.
As a result of the two new issues, China Resources (Holdings) stake in the Hong Kong-listed company is to increase marginally from 52.08% from 52.48%.
The new issue is equivalent to 8.9% of China Resources Enterprise's existing share capital and the placement is equal to 7.3% of prevailing shares, the announcement revealed.
China Resources Enterprise said it's confident that the outlook for container terminal operators along the southern coast of China is good and that HIT is well placed to capitalize on further growth.
'The directors believe that the acquisition provides an excellent opportunity for the company to gain exposure to this sector and to diversify its earnings base,' the statement said.
China Resources Enterprise added that it will appoint two representatives to HIT's board to signal its long term interest in the concern.
The new shares are priced at a steep discount to the HK$12.95 a share which China Resources traded at before it was suspended during the morning session Tuesday.
The gap has widened further as a result of early trade Wednesday in which China Resources has jumped to HK$14.10 at 0300 GMT, representing a premium of HK$1.85, or 16% on the new issue price.
Frederick Tsang, head of Hong Kong research at PrimeEast Securities (HK) Ltd. said the acquisition will strengthen China Resources Enterprises recurrent earnings base.
'It improves the company's fundamentals. Whereas before it was a property company, it's now got a recurrent earnings base which will allow it to do deals more aggressively,' he said.
Morgan Stanley Asia Ltd. analyst Mike Warren said China Resources was able to acquire the HIT stake at below market value.
He estimates that HIT's position as a dominant port operator will result in throughput increasing by about 9% a year in the next three years.
'Given the quality of operations, I think HIT should be valued at 16 times 1997 earnings or a 14% premium to the Hong Kong market at 14 times,' he said.
The analyst forecasts that HIT's earnings before interest and taxes will be HK$3.84 billion in 1997. At 16 times that figure, a 10% stake is worth HK$6.14 billion, well above the HK$3.50 billion paid by China Resources.
PrimeEast Tsang said his forecast of China Resources Enterprise net profit in the year to Dec. 31, 1997 has been raised to HK$1.19 billion from HK$842.0 million as a result of the purchase. |
