NWD takes on privatising NWCL once more

What's different this time around?

NWD has announced a voluntary conditional cash offer to take private its subsidiary, New World China Land (NWCL).

According to a research note from Barclays, the HK$7.80/share offer price will cost NWD about HK$21.3-21.5bn. This would cause NWD's net debt to increase initially.

But Barclays says if NWCL's potential sales proceeds from its recent project disposals to Evergrande are considered, it is estimated the net cost to NWD would work out to HK$4.2bn. Barclays believe NWD's 5.5% current dividend yield is one of the key attractions for investors. As long as the privatisation offer does not impact NWD's ability to sustain its HK$0.42/share DPS, the risk of an increased debt profile should be mitigated.

Here's more from Barclays:

What's different this time around? Unlike the 2014 failed privatisation attempt when it adopted the Scheme of Arrangement approach, NWD has now made a voluntary conditional cash offer for the disinterested NWCL shares. This means that the "head count" test will no longer be applicable at the NWCL level. While this offer constitutes a possible major transaction for NWD, its 43.87% shareholder, CTFE, is not required to abstain from the shareholder vote.

What is the actual cost to NWD? At HK$7.80/share, the privatisation offer will cost NWD around HK$21.3-21.5bn. Although this would initially increase NWD's net debt and gearing, we estimate the net cash outlay for NWD to privatise NWCL would work out to HK$4.2bn if we take into account the potential cash inflow of HK$17.3bn for NWCL from its recent transactions with Evergrande.

NWD should accelerate local property sales to reduce timing risk: For NWD shareholders the increase in debt profile is negative, but as long as this does not impact NWD's ability to sustain its HK$0.42/share dividend (5.5% yield), there should be some valuation support, in our view. As the proceeds from the asset disposal to Evergrande are to be received in installments over the next two years, we believe one way to minimise the timing risk would be for NWD to accelerate its Hong Kong property sales in order to reduce gearing.

Key downside risks: Potential delay/cost overrun for New World Centre redevelopment and a change in the value of NWD's listed subsidiaries would affect its NAV.