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Views on the Estate:HK/China property monitor:Logan restructuring announced

发布时间:2016-06-01    研究机构:摩根大通(亚太)

Logan restructuring announced: On May 31, China Jialing 中国嘉陵(600877.CH) announced asset restructuring details. First, Logan Infrastructure would acquire all China Jialing?s shares held by China South Industries Group (南方集团) for Rmb1.82 bn. Second, Jialing would sell all its operations, assets & liabilities to China South Industries Group. Third, China Jialing would issue new shares to purchase the toll road and commercial property assets held by Logan Infrastructure. Fourth, China Jialing would conduct share placement to acquire the controlling stake in Logan Property (3380.HK) from Logan Infrastructure. The first three are conditional across one another, while the fourth deal is a separate transaction. If everything goes through, Jialing will own the original infrastructure and commercial assets of Logan Infrastructure, and also a controlling stake in HK-listed Logan Property. (Source: Xinhua, Company data)

JPM View: This restructuring is effectively a backdoor listing among A-share for the first part, and then if the second part involving the transfer of controlling stake in Logan Property to Jialing, this will then be a backdoor listing for Logan Property in the A-share market. After the restructuring Logan Property will be consolidated to Jialing A-share financial, and we think the next step post restructuring is for Jialing to raise equity from a conglomerate platform and allocate such resources across group, supporting the growth of its property business. This of course comes with the expectation of a higher valuation. By Bloomberg estimates Logan Property is trading at 4.5x 2016E P/E, vs 7-9x P/E for mid-size developers listed in A-share. We think the idea of “going-back-to-A-share” is attractive for small/mid-size developers with high gearing, as the off-shore market perceives them as possessing excessive risk and hence not willing to buy and hold on to the stock. If Logan’s deal goes through well, we would not be surprised to see more developers follow-suit. With such criteria in mind, companies such as China South City (4.5x P/E / 77% net gearing),SUNAC (3.3x P/E / 86% net gearing), Beijing Capital Land (3.2x P/E / >100% net gearing), etc could be among the list to consider such.

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