Contemporary Real Estate seller Sunac, this 693 million transaction is just the beginning?

(Text/Zhang Yu Editor/Ma Yuanyuan) On the morning of November 1, Sunac Service and First Service, a property company under Contemporary Real Estate, both issued announcements announcing that Sunac Service would acquire 322 million shares of First Service for 693 million yuan, accounting for 32.22% of the total issued share capital of First Service, with a consideration of 2.15 yuan per share.

At the same time, the announcement said that after the completion of the acquisition, New Baili Financing may make an unconditional mandatory cash offer on behalf of Sunac Service Investment (III) Co., Ltd. (i.e. the offeror) to acquire all the remaining shares of First Service.

On November 1, First Service shares opened high and went high, closing at HK$2.16 per share, up 57.66%.

For issues related to the development of enterprises, on November 1, the relevant person in charge of Contemporary Real Estate responded to the Observer Network and said that everything is subject to the announcement.

The remaining shares may also be "sold" to Sunac

It should be noted that in addition to the part of the confirmed acquisition, the remaining shares of First Service are also interested in "selling". According to the announcement, upon completion of the acquisition transaction, the offeror and its co-actors will make an offer for the remaining shares.

If, within four months of sending the relevant documents, the Offeror has acquired not less than 90 per cent of the Offer Shares and 90 per cent of the Non-InterestEd Shares in accordance with the regulations, the Offeror shall be entitled to compel the acquisition of the remaining Shares not acquired pursuant to the Offer. Upon completion of the mandatory acquisition (if applicable), First Service will become a wholly-owned subsidiary of the Offeror and will apply to the Stock Exchange for delisting under the Listing Rules.

Of course, the announcement stated that if the Offeror did not have a mandatory takeover of the remaining shares that had not been acquired by the Offeror under the Offeror, the Offeror would take the necessary steps to ensure that First Service Holdings would maintain a sufficient number of public holdings.

That is, the remaining 67. The 78% stake is also likely to be acquired by Sunac in the future.

However, the first service reminds that the relevant offer will be made after the completion of the share transfer agreement. An offer may or may not be made.

At the same time, it is worth mentioning that the management seller undertakes that after the closing of the management share transfer agreement, if requested by the offeror, Liu Peiqing and Long Han should sign and deliver the resignation letter of the relevant director or other position of the first service company. In addition, the Company will do its utmost to ensure the continued retention of the remaining core management and the stability of the target group.

It is reported that Liu Peiqing is the executive director, co-CEO and general manager of First Service, who is mainly responsible for formulating and implementing First Service's strategic business objectives and overseeing the day-to-day management and overall operation of First Service's property management business. Long Han is a Non-Executive Director of First Services, primarily responsible for formulating and leading the Overall Development Strategy and Business Plan of the Group.

According to the announcement, First Service ranked top 23 in the 2021 China Top 100 Property Enterprises List, and the company was listed on the Hong Kong Stock Exchange in October 2020, mainly engaged in property management services and green habitat services.

As of June 30 this year, the contracted GFA of the First Service was 72.994 million square meters, and the GFA under management was 53.202 million square meters, most of which were located in first- and second-tier cities such as Beijing, Xi'an, Changsha and Taiyuan. Non-residential formats cover office buildings, hospitals, universities, industrial parks, etc.

From the company's current business development, from 2019 to 2020, the first service achieved operating income of 625 million yuan and 772 million yuan respectively. In the first half of 2021, the company achieved operating income of 509 million yuan.

From 2019 to 2020, the company's pre-tax profit was 107 million yuan and 124 million yuan, respectively. In the first half of this year, the company's pre-tax profit was 93.234 million yuan.

Can "cut meat" properties be bailed out?

As we all know, since the epidemic, property stocks are currently in a period of rapid development. Its market valuation and development prospects are also visible. The reason why Contemporary Real Estate chose to "cut meat" the property at this time is not unrelated to the liquidity crisis that the company is currently experiencing.

On October 26, Modern Real Estate announced that due to the adverse effects of various factors such as the macro-economy, the real estate industry environment and the new crown epidemic, the company had unexpected liquidity problems. The repayment arrangements for the principal amount of the 12.85% senior notes due on 25 October 2021 and the accrued but unpaid interest were not completed on the same day. As at the date of the announcement, the total principal amount of the notes issued by Modern Land was US$250 million.

Behind the official announcement of the default of the US dollar debt, Modern Land has also tried to "save itself" in many ways, and on October 11 this year, Modern Land issued an announcement that it seeks to redeem 35% of the senior notes due on October 25, 2021 and have a coupon of 12.85%, and the remaining part of the maturity date is extended by three months to improve liquidity and cash management and avoid any potential repayment defaults. In addition, Zhang Lei, chairman of the board of directors, executive director and controlling shareholder of the company, and Zhang Peng, president and executive director of the company, intend to provide shareholder loans of about 800 million yuan to the group, which is expected to be completed within the next 2 to 3 months.

However, on October 20, Modern Land issued a request for consent to terminate the 12.85% senior note due 2021.

It is worth mentioning that on October 23, in order to stabilize the hearts and minds of the group's employees, Zhang Lei, chairman of the board of directors of Modern Real Estate, and Zhang Peng, president of Modern Real Estate, sent an internal letter to employees.

The letter said that Modern Real Estate has always adhered to the road of green technology development and hopes to occupy a place in the industry through leading green technology, but under repeated severe situations, it has encountered considerable financial pressure problems. For this debt problem, the company adopted asset disposal, shareholder borrowing, the introduction of war investors, etc., in the more severe situation, several tasks did not achieve the expected results, resulting in this risk. However, the work continues to advance, the company's asset disposal and major shareholder loans will be in place, and the company will ensure the rights and interests of employees at the first time.

In addition, in response to employees' concerns about the redemption of the company's wealth management product "Staff Treasure", on October 25, the management of Contemporary Real Estate said at the meeting that the company would guarantee that at least the principal could be returned to employees, and the return time was expected to be at the end of this year.

It is worth mentioning that Wind data shows that as of now, there are still 4 overseas foreign debts to be repaid in the future, the most recent maturity date is February 26, 2022, and the current balance is 200 million yuan.

This article is an exclusive manuscript of the Observer Network and may not be reproduced without authorization.