<b>Author: Wang Di</b>
<b>Producer: Focus Finance</b>
A financial dilemma caused by dollar bonds seems to have taken a turn for the better. After more than 20 days of suspension of trading, the first service of the property listing sector of Modern Land (2107. HK) ushered in the "White Samurai".
On the morning of November 1, Sunac Services and First Services issued a joint announcement that Sunac Services intends to conditionally acquire 322 million shares of First Service through New Baili Financing Co., Ltd. (hereinafter referred to as "New Baili"), accounting for 32.22% of the company's issued share capital, with a transaction consideration of 692 million yuan (HK$8.43 billion) and a consideration of 2.15 yuan per share (HK$2.6167 per share). On the last trading day, the closing price reported on the Exchange was approximately 91.0% of the premium of HK$1.37 per share.
Previously, the default of $250 million of bonds became the fuse of the dilemma of contemporary real estate, and contemporary real estate became one of the top 100 real estate enterprises that fell into debt default after Evergrande, Huaxia Happiness, Blu-ray Development, Fantasia Holdings and Xinli Holdings. Today, Sunac's nearly 700 million yuan of "life-saving money" has opened the first scene of the contemporary real estate war. On the same day, the first service resumed trading shares opened high, up 57.66% by the close, the stock price was 2.160 Hong Kong dollars per share, with a total market value of 2.160 billion.
Green technology Habitat has always been the label of contemporary real estate and the first service. The acquisition is exactly one year or so since First Service's listing on 22 October 2020, and its share price has indeed fallen compared to the HK$2.4 per share listed share price. The sale consideration per share is approximately HK$2.62, representing a 9.0% premium to the initial listing of the first service.
Is this a good deal for Sunac or Contemporary?
<b>The transaction was split into three parts, and the three executives withdrew first</b>
Focus Financial Combing found that New Baili traded on behalf of Sunac Services as an offer to acquire, and the shares sold to Sunac Services were cut into three parts: Shijia and Haofeng, Liu Peiqing, Long Han and Liu Peiqing Management, Long Han Management, and Dinghui Management.
It is understood that the only ultimate beneficial owners of Shijia, Haofeng Investment Company, Liu Peiqing Management and Long Han Management are Zhang Lei, Zhang Peng, Liu Peiqing and Long Han.
According to the comparison of the shareholding structure on the date of the first service announcement, it was found that after the sale, except for the 29.18% of the shares left by the family, the other sellers held shares and sold them. Among them, the majority of the shares held by three senior executives, including Zhang Peng, chairman of the board of directors of First Service, Liu Peiqing, executive director, and Long Han, non-executive director.
In this transaction, Shijia (Zhang Lei) sold only about 4.32% of the shares, Haofeng sold about 17% of the shares, and Liu Peiqing and Long Han sold all the 2.181% of the shares held by individuals.
Specifically, according to the original text of the announcement,
(1) On 7 October 2021, the Offeror (as the Purchaser) entered into a framework agreement for the transfer of shares of the controlling shareholder with Saga and Haofeng (as the Seller), as well as Mr. Zhang Lei, Mr. Zhang Peng and First Assets (as the Guarantor of the Seller), pursuant to which the Offeror conditionally agreed to purchase and Saga and Haofeng conditionally agreed to sell a total of 213,929,000 Shares, representing approximately 21.39% of the total issued share capital of First Service Holdings as at the date of this Joint Announcement, with a consideration of RMB460 million.
(2) On 7 October 2021, the Offeror (as the Buyer) entered into a management share transfer agreement with Lau Pei-hing Management (as the Seller), long Han Management (as the Seller), Mr. Liu Peiqing (as the Seller and the Seller's Guarantor) and Mr. Long Han (as the Seller's Guarantor), pursuant to which the Offeror conditionally agreed to the purchase and Liu Peiqing Management, Long Han Management and Mr. Liu Peiqing conditionally agreed to sell a total of 21,810,000 Shares, Represents approximately 2.18% of the total issued share capital of First Service Holdings as at the date of this Joint Announcement, with consideration of RMB0.47 billion.
(3) On 7 October 2021, the Offeror (as the Purchaser) entered into a CDH Share Transfer Agreement with CDH (as The Vendor), pursuant to which the Offeror conditionally agreed to purchase and CDH conditionally agreed to sell 86,424,000 Shares, representing approximately 8.64% of the total issued share capital of First Services Holdings as at the date of this Joint Announcement, for consideration of RMB186 million.
This sale is really a helpless move for contemporary real estate. Previously, Zhang Lei, chairman of the board of directors of Modern Real Estate, and Zhang Peng, president of Modern Land, sent an internal letter saying that they would use asset restructuring, asset disposal, shareholder borrowing, and the introduction of war investors to solve the problem of funds.
With a consideration of approximately HK$2.62 per share, can it solve the urgent needs of Contemporary Real Estate?
According to the announcement, the Offeror has the right to adjust the consideration downwards in accordance with the terms contained in each of the share transfer agreements in accordance with the results of the due diligence. Upon completion, the Offeror and its co-actors (other than Mr. Zhang Lei, Mr. Zhang Peng and the controlling shareholders) will hold a total of 322,163,000 Shares, representing approximately 32.22% of the issued share capital of First Service Holdings as at the date of this Joint Announcement.
As to how the offeror pays, First Service states that the payment of the acceptance offer (after deducting the stamp duty share of the shareholder accepting the offer) will be paid in cash as soon as possible, but in any case within seven business days after the date of formal and full acceptance. Only upon receipt by the Offeror or its representatives of the relevant supporting documents of ownership of the Shares will the Acceptance of the Offer be completed and valid.
For the sale, First Service calculated an account in the announcement: the offer price was HK$2.6167 per share: this was a premium of approximately 91.0% to the closing price of HK$1.37 per share reported on the Exchange on the last trading day, and a premium of approximately 77.5% on the average closing price of HK$1.474 per share reported on the Stock Exchange for five consecutive trading days as of the last trading day (inclusive) a premium of approximately HK$170.7% per share at an average closing price of HK$0.9667 per share reported on the Stock Exchange for 90 consecutive trading days as at the date of the last trading day;
Based on the total equity attributable to equity shareholders in the unaudited financial statements recently issued by First Service Holdings of RMB673,657,000 and the 1,000,000 shares issued as at the date of this Joint Announcement, the unaudited consolidated net asset value per share of First Service Holdings as at 30 June 2021 was approximately RMB0.6737 (equivalent to HK$0.8199) at a premium of approximately 219.1% over the initial listing of First Service at a selling price of approximately RMB0.6737 (equivalent to HK$0.8199) compared to the initial listing of First Services of gains.
<b>The "insurance lock" of Sunac's services</b>
As mentioned earlier, Sunac Services offered a good purchase price of HK$2.62 per share, representing a premium of about 91.0% over the current HK$1.37 per share price, but only 9% relative to the initial listing price of First Service. Both sides should be more satisfied.
It is worth noting that in this 59-page announcement, part of the space is devoted to the description of the transaction price adjustment and the conclusion of the transaction conditions, which can be called a model of the transaction agreement.
In short, Sunac Services put several "insurance locks" on this transaction. Under these complex trading conditions, Sunac can make a price reduction according to the financial situation of the first service after doing its due diligence. At the same time, very strict transaction completion conditions and payment conditions are set. If one of the first services cannot be satisfied, Sunac services have the right to terminate the transaction or force the acquisition of mortgage shares in the first service.
Moreover, First Services signed a "fixed income guarantee" agreement with investor CDH. If, in this transaction, the proceeds from cdhwast's transfer of shares are lower than the fixed guaranteed income, it will be made up by the shareholders of First Service.
<b>The first service may face delisting</b>
After the acquisition, the focus of the industry is not only whether the sale of equity can bring a glimmer of vitality to contemporary real estate, on the other hand, where will the first service go in the future?
According to the announcement, Sunac Services will further initiate a general tender offer after the transaction, and if completed, First Service Holdings will become a wholly-owned subsidiary of Sunac Services, at which time First Service will make an application to the Stock Exchange to revoke the listing of shares in accordance with Rule 6.15 of the Listing Rules.
In addition to delisting, according to the inertia of personnel changes that are bound to cause changes in equity turmoil, the retention of future board candidates is also a part of the attention.
First Service asserts that the controlling shareholder seller irrevocably undertakes to induce the core management to remain in First Service Holdings Group and maintain staff stability (excluding Mr. Liu Peiqing's resignation as a director or other position of the relevant First Service Holdings Group Company, as requested by the Offeror, and as at the date of this Joint Announcement, the Offeror has no intention of requiring Mr. Liu Peiqing to resign as a director or other position of the relevant First Service Holdings Group Company in this Joint Announcement).
It is understood that as at the date of the announcement, the Board of Directors of First Service Holdings currently comprises four executive directors, two non-executive directors and three independent non-executive directors. The executive Directors are Mr. Liu Peiqing, Mr. Jia Yan, Mr. Jin Chungang and Ms. Zhu Li, the non-executive Directors Mr. Zhang Peng and Mr. Long Han, and the independent non-executive Directors Ms. Sun Jing, Ms. Zhu Caiqing and Mr. Cheng Peng.
First Service stated that Sunac Services intends to nominate new directors for first service holdings board of directors with effect from the earliest time permitted under the Takeovers Code. As at the date of this Joint Announcement, the Offeror has not made any final decision on the nomination of a new Director of First Service Holdings.
Focus Financial Analysis found that the current Board of Directors of Sunac Services consists of Mr. Wang Mengde, Chairman of the Board of Directors and Non-executive Director of Sunac Services, Ms. Cao Hongling, Mr. Xie Jianjun and Ms. Yang Man, Executive Directors, Mr. Gao Xi, Non-executive Director, and Ms. Wang Lihong, Mr. Yao Ning and Mr. Zhao Zhonghua, independent non-executive Directors.
As for which director Sunac Service will send to the first service in the future, further announcements will be made.
In addition, the announcement also disclosed the Independent Board Committee and independent financial advisers of First Service Holdings.
The Independent Board Committee has been formed by Sun Jing, Zhu Caiqing and Cheng Peng, all of whom are independent non-executive directors of First Service Holdings, to advise the offer shareholders on whether the offer is fair and reasonable and whether the offeror should accept the offer.
<b>Sunac should build a head property enterprise</b>
In fact, under the stress test of real estate dollar debt, selling property has become a way for housing companies to save themselves. Whether it is Blu-ray and R&F selling the property to Country Garden, or Sunshine City and Bourne Property taking a stake in Vanke Property All Things Cloud. On the one hand, housing enterprises are for bailout, on the other hand, they hope that their properties can have a more long-term development. Under the fierce merger and acquisition, the property shows a trend of reporting group heating.
Judging from the acquisition of the first service by Sunac Service, the announcement said that the acquisition will greatly increase the property management scale of Sunac Service Group, enhance the management density of Sunac Service Group in core cities, expand its market share in non-residential formats, and enhance the comprehensive competitiveness and market influence of Sunac Service Group in the field of property management services. More importantly, through the acquisition, Sunac Service Group will have core capabilities and competitive advantages in the field of green habitat services.
It is understood that the main business of First Service Holding Group is to provide property management services, green habitat solutions and value-added services.
In terms of the area under management and projects of First Service, as of June 30, 2021, First Service Holdings had a contracted gross floor area of about 72.994 million square meters and a gross floor area under management of about 53.202 million square meters, and most of the projects under management were located in first- and second-tier cities such as Beijing, Xi'an, Changsha, Taiyuan, etc., and managed many high-end well-known projects such as Beijing Contemporary MOMA and Beijing Wanguo city MOMA. Its non-residential format layout is extensive, accounting for about 60% of the total construction area under management, covering office buildings, hospitals, universities, industrial parks, etc.
In terms of Sunac services, in the first half of this year, its area under management was about 170 million square meters, and the contract area was about 320 million square meters; as of June 30, the area from third parties accounted for about 32.2% of the contracted area, and the area from third parties in the new contract area of Sunac services accounted for about 69.8%.
It is worth mentioning that mergers and acquisitions have become a way to expand the scale of Sunac services. The core technology of the first service has added to it.
From the perspective of both revenues, as of June 30, Sunac Services achieved operating income of 3.32 billion yuan, an increase of 85.4% year-on-year; gross profit of 1.03 billion yuan, an increase of 121.5% year-on-year, gross profit margin of about 31%, an increase of 5.1 percentage points over the same period last year; net profit attributable to the mother reached 610 million yuan in the same period, an increase of 154.4% year-on-year; in the same period, the profit attributable to the controlling shareholders of First Service was about RMB0.65 billion.
In terms of green habitat services, First Service Holdings has its own advantages, and its non-wholly-owned subsidiary, First Moma Human Settlement Environment Technology (Beijing) Co., Ltd. ("First Habitat"),is one of the earliest enterprises in the industry to carry out the research and development and application of "constant temperature, constant humidity, constant oxygen, constant static" four constant technology. Its business scope includes green technology consulting, system installation services, energy operation and maintenance services and building technology products. After years of development, First Service has accumulated rich experience and technical advantages in the field of green habitat services, and currently has 55 patented technologies, 38 green construction star certificates, and 28 energy operation and maintenance projects.
For Sunac, at the beginning of this year, Sunac clarified that digital technology will be one of the key business segments for development this year, and promote its close integration with the three major businesses of real estate, property and cultural tourism.
"We want to be a leading enterprise in the property industry." This is a FLAG that Sunac set up last year.
First Service said that Sunac Services will continue to give equipment-related business support, and before the acquisition, Sunac China, the parent company of Sunac Service Group, has continued to increase the development ratio of green buildings and healthy residences according to market demand and policy guidance, and First Habitat will deeply coordinate with Sunac China to consolidate and enhance its leading position in the field of green habitat services and continuously expand its influence.
In addition, First Habitat will also vigorously expand third-party projects to meet the growing demand for green habitat services from other real estate enterprises, and the green habitat business will open up new growth space for Sunac Service Group.