Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

HK Type 4 license through Ballingal Investment Advisors Ltd. 

I'm a highly experienced sell-side analyst with in excess of 22 years of covering Asia Pacific equities, the past 19 years immersed in event strategies encompassing M&A risk arbitrage, directional long/short, stub trades and restructuring.  

My background also includes accountancy (liquidation/bankruptcy/receivership) earlier in my career and as a chief financial officer of a global commodity company based in the US and Mexico.

Pan-Asia Catalysts/Events

Quiddity Advisors

Equity Bottom-Up

<p>On the 13 September, PRC property developer <a href="https://www.smartkarma.com/entities/shui-on-land-ltd" target="_blank" data-smartkarma-citation="entities:4153:1" rel="noopener">Shui On Land (272 HK)</a><a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0913/2021091301588.pdf" target="_blank" rel="noopener">announced</a> the proposed spin-off and listing various property interests in China, under the banner Shui On Xintiandi. </p>
<p>This is Shui On's <em>second</em> attempt to list Xintiandi, having first proposed a listing on the <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2012/0528/ltn20120528480.pdf" target="_blank" rel="noopener">28 May 2012</a>.  That spin-off was ultimately abandoned, but not before Brookfield Property invested US$500mn in convertible perpetual securities on the <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2013/1031/ltn20131031185.pdf" target="_blank" rel="noopener">31 October 2013</a>, and once exercised on the <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2015/0902/ltn20150902780.pdf" target="_blank" rel="noopener">2 September 2015</a>, gave Brookfield a 21.894% stake in Xintiandi. </p>
<p>On the 28 December 2018, Shui On <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2018/1231/ltn20181231087.pdf" target="_blank" rel="noopener">bought out</a> Brookfield's share for HK$4.073bn. This implied a fair value for Xintiandi of HK$18.6bn. With a NAV of HK$17.4bn (as at 31 Dec 2017), Shui On paid an implied P/B of 1.07x. </p>
<p>Since 15 March 2019, Xintiandi has been a wholly-owned subsidiary of Shui On Land.</p>
<hr>
<h3>The Proposal</h3>
<ul>
<li>A portfolio of the company's 13 completed commercial assets, including Shanghai Xintiandi, will be transferred to Shui On Xintiandi. The new company will primarily be engaged in the investment in and ownership of commercial properties, as well as property management and asset management in China.</li>
<li>
<a href="https://www1.hkexnews.hk/app/sehk/2021/103811/documents/sehk21091301509.pdf" target="_blank" rel="noopener">Here</a> is the red herring.</li>
<li>Shui On Land will continue its focus on the master plan and development of mixed-use communities and properties as well as the sale of developed properties at such communities.</li>
<li>The 13 properties have a total GFA of 2mn sqm, 52.7% of which are located in Shanghai. 64.4% and 35.6% of the total GFA of the properties (excluding carparks and other spaces) are retail and office properties, respectively.</li>
<li>The properties have a total value of RMB53.2bn (assessed by Knight Frank), 71.9% of which are located in Shanghai. 58.1% and 41.9% of the total value of the properties (excluding carparks and other spaces) are derived from retail and office properties, respectively.</li>
</ul>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/230/049/original/image_62227833871631765506668.png?1631765506" class="editor-image img-responsive" data-smartkarma-image-id="230049"></figure>
<div class="content-caption">Source:<a href="https://www1.hkexnews.hk/app/sehk/2021/103811/documents/sehk21091301509.pdf" target="_blank" rel="noopener"> page 94</a>
</div>
<ul>
<li>The chart below shows the mix of property types as at 30 June 2021.</li>
</ul>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/230/100/original/image_736295179111631777987271.png?1631777986" class="editor-image img-responsive" data-smartkarma-image-id="230100"></figure>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/230/101/original/image_869881186121631778033210.png?1631778032" class="editor-image img-responsive" data-smartkarma-image-id="230101"></figure>
<div class="content-caption">Source: <a href="https://www1.hkexnews.hk/app/sehk/2021/103811/documents/sehk21091301509.pdf" target="_blank" rel="noopener">page 96 &amp; 97</a>
</div>
<ul>
<li>An EGM will be convened to allow shareholders to vote on the spin-off. This should be a simple majority vote. Shui On Company Limited, with 55.68% of shares out in Shui On, has provided an irrevocable undertaking to vote in favour of the spin-off resolution, so that's done. Provided listing conditions are suitable, listing could take place early next year. </li>
</ul>
<blockquote>
<p>The Board intends that, subject to completion of the Proposed Spin-off and the Proposed Listing, a Special Dividend be distributed to the Shareholders after completion of the Proposed Spin-off and the Proposed Listing.</p>
</blockquote>
<p>More below the fold. </p>

On the 13 September, PRC property developer Shui On Land (272 HK)announced the proposed spin-off and listing various property interests in China, under the banner Shui On Xintiandi. 
This is Shui On's second attempt to list Xintiandi, having first proposed a listing on the 28 May 2012.  That spin-off was ultimately abandoned, but not before Brookfield Property invested US$500mn in convertible perpetual securities on the 31 October 2013, and once exercised on the 2 September 2015, gave Brookfield a 21.894% stake in Xintiandi. 
On the 28 December 2018, Shui On bought out Brookfield's share for HK$4.073bn. This implied a fair value for Xintiandi of HK$18.6bn. With a NAV of HK$17.4bn (as at 31 Dec 2017), Shui On paid an implied P/B of 1.07x. 
Since 15 March 2019, Xintiandi has been a wholly-owned subsidiary of Shui On Land.

The Proposal

A portfolio of the company's 13 completed commercial assets, including Shanghai Xintiandi, will be transferred to Shui On Xintiandi. The new company will primarily be engaged in the investment in and ownership of commercial properties, as well as property management and asset management in China.

Here is the red herring.
Shui On Land will continue its focus on the master plan and development of mixed-use communities and properties as well as the sale of developed properties at such communities.
The 13 properties have a total GFA of 2mn sqm, 52.7% of which are located in Shanghai. 64.4% and 35.6% of the total GFA of the properties (excluding carparks and other spaces) are retail and office properties, respectively.
The properties have a total value of RMB53.2bn (assessed by Knight Frank), 71.9% of which are located in Shanghai. 58.1% and 41.9% of the total value of the properties (excluding carparks and other spaces) are derived from retail and office properties, respectively.


Source: page 94


The chart below shows the mix of property types as at 30 June 2021.



Source: page 96 &amp; 97


An EGM will be convened to allow shareholders to vote on the spin-off. This should be a simple majority vote. Shui On Company Limited, with 55.68% of shares out in Shui On, has provided an irrevocable undertaking to vote in favour of the spin-off resolution, so that's done. Provided listing conditions are suitable, listing could take place early next year. 


The Board intends that, subject to completion of the Proposed Spin-off and the Proposed Listing, a Special Dividend be distributed to the Shareholders after completion of the Proposed Spin-off and the Proposed Listing.

More below the fold. 

Shui On Land (272 HK)'s Xintiandi Spin-Off