0034.HK

The Latest: Kowloon Development (0034.HK) announced on Thursday that it will sell its 60% interest in land it owns in Shanghai’s Yangpu district to its major shareholder Or Wai Sheun for HK$1.39 billion ($178 million). It will use the proceeds to repay loans and for general working capital.

Looking Up: The company said the operating environment for Chinese property developers is worsening, and it would have taken longer for it to realize its investment in the land. Thus, the sale will allow the company to recoup part of its investment and strengthen its financial position.

Take Note: The Shanghai project’s net asset value stood at HK$714 million at the end of last year. The sale is expected to result in a small profit of approximately HK$3.85 million for Kowloon Development after repaying the project loan.

Digging Deeper: Kowloon Development mainly engages in real estate development and property investment. Its debt ratio rose to nearly 129% by the middle of last year, as it had to pay nearly HK$10 billion in land premiums for its Ngau Chi Wan project in Hong Kong. That prompted it to start selling off some assets to reduce debt, with the sale of its Shanghai project the latest of those. Like many Mainland developers, the company has also taken a hit from recent weakness in China’s property market. 

Market Reaction : Kowloon Development’s shares rose slightly when the market opened on Friday, but later gave back those gains to close down 2.7% at HK$4.64 by the midday break.

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