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HK tycoon Gordon Wu tunnelling out of public markets

REAL estate tycoon Gordon Wu, whose plan to build artificial islands around Hong Kong was just embraced, wants to take his company Hopewell Holdings private 40 years after it made its market debut. A US$2.7 billion bid is less generous than the headline premium suggests. The discounts applied to property companies, however, may inspire peers to follow suit.

Relentless advocacy for grandiose infrastructure projects, some environmentally and economically dubious, has made Mr Wu famous. Decades ago, he lobbied for a bridge to connect the Fragrant Harbour with Zhuhai in mainland China. Just such a sea crossing - a record 55 kilometres long - opened last month, also linking to Macau, at a cost of US$18 billion. He also was behind Hong Kong Chief Executive Carrie Lam's controversial plan to spend over US$60 billion, or half the city's fiscal reserves, to reclaim land to house 1.1 million people.

Such ambition hasn't swayed investors, a surprising development given the outsized influence of real estate in the financial hub. Since 2009, shares of Hong Kong-listed Hopewell Holdings have steadily imputed a lower value on what the company owns. Before the privatisation bid, it was trading at about 56 per cent less than book value. Hopewell also holds nearly HK$9 billion (S$1.6 billion) in net cash. In November, the property and infrastructure group reported HK$52 billion of equity, or about HK$60 a share. It plausibly argued that valuing its hotel portfolio at market rates, instead of at cost, would make it more like HK$66.

Mr Wu is offering HK$38.80, a level last achieved in 1994, and 47 per cent higher than the undisturbed price. It is not as lavish considered another way. The average buyout for Hong Kong property companies has been at a 27 per cent discount to net asset value, implying a price closer to HK$44 a share for Hopewell, says analyst David Blennerhasset.

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No investor is going to advocate for such an unlucky figure in Chinese numerology. Even so, it suggests there is scope to push for more. If Mr Wu can wriggle away with his company at some sort of discount, though, rivals such as Great Eagle and US$18 billion Wharf Real Estate Investment might try to tunnel out from the exchange right behind him. REUTERS