HONG KONG â€" Cofco, a sprawling, state-owned Chinese conglomerate kicked off on Tuesday a reverse takeover bid worth 14.2 billion Hong Kong dollars ($1.8 billion) that would result in a Hong Kong listing for its commercial property business in mainland China.
Cofco, whose varied operations include slaughtering livestock, managing hotels and selling life insurance, said it would inject the assets of 12 property projects in cities across China â€" including hotels, offices, apartments and shopping malls â€" into the Hong Kong Parkview Group, one of its subsidiaries listed in Hong Kong.
In exchange, Parkview â€" currently a tiny holding company for a single office investment in Hong Kong â€" would issue new shares â€" as many as 19 times the number of shares it currently has outstanding.
Reverse takeovers involve injecting privately held assets into a target company that is already listed, usually in exchange for new shares that give the seller of the assets a controlling stake in the listed company. They are a popular option among Chinese property developers, who often struggle to secure bank funding and whose boom-and-bust earnings cycles can make an outright initial public offering more difficult. In Hong Kong, reverse takeovers are vetted by the stock exchange as if they were initial public offerings.
The complex deal calls for Parkview to be renamed Cofco Land. Cofco would end up holding 75 percent of Cofco Land after the reverse takeover, while public shareholders who did not buy into the new share sale would find their current 30 percent stake in Parkview reduced to 2 percent of Cofco Land.
Cofco’s asset injection is the second part of a two-step transaction. In July of 2012, the Chinese company paid 362 million Hong Kong dollars ($47 million) to acquire control of the listed company from a local family, but at the time Cofco did not change the company’s course of business.
The new shares to be issued by Parkview would be priced at 2 dollars apiece, a 50 percent discount on the 4 dollars at which the stock traded before the announcement.
In explaining the pricing, the directors of Parkview â€" in which Cofco currently has a 69 percent indirect stake â€" took the unusual position that their company’s stock had been overvalued in recent trading.
The recent trading levels ‘‘cannot be taken as the true value of the shares because there appeared to be a lack of correlation between the current trading price of the shares and the underlying business operations or financial performance of the company,’’ the directors said in Tuesday’s statement.
Shares in Parkview had soared in two trading sessions before being suspended Sept. 17, rising 23 percent to 4 dollars apiece.
‘‘The recent increase in the share price may have been underpinned by the expectation of potential asset injection by Cofco Group,’’ the directors said in the company’s statement.
HSBC is the financial adviser and sole sponsor of the reverse takeover.
