Hopewell (0054.HK)

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Hopewell and the lemon discount

22 March 2019
Webb-site Reports

Yesterday, independent shareholders of Hopewell Holdings Ltd (Hopewell 0054) voted to approve its privatisation at $38.80 per share, a 43% discount to the adjusted net asset value of $68.05, according to the scheme document. The NAV was adjusted principally to take account of the current state of the Hopewell Centre II mega-project in Wanchai which, after 30 years of gestation, is finally coming to fruition and will relatively soon be booked into the balance sheet as an investment property. The offer price was, nevertheless, a premium of 46.7% to the last traded price of $26.45 before the scheme was announced. In other words, Hopewell had been trading at a 61% discount to its NAV. The 43% offer discount to NAV on the 547,845,931 shares (63.07%) of Hopewell that the family does not already own is worth HK$16.02bn (US$2.04bn). 

The fact that investors (and presumably, their proxy advisors) were willing to approve this, and that the shares were trading at such a large discount in the first place, speaks volumes about the poor state of corporate governance in the Hong Kong market. Share prices are in most cases just the price of a minority shareholding with no real ability to influence corporate strategy or hold boards to account for under-performance. You get in the back seat of a car and just hope that the driver and his (rarely her) offspring know where they are going and are capable of driving safely and efficiently to their stated destination, avoiding detours and keeping their hands out of the till while they do so. Any so-called "independent directors" that the controlling shareholder elects are only as independent as the controller wishes them to be.

The legal and regulatory framework provides little in the way of remedies for independent shareholders, whether against directors, auditors or sponsors, exacerbating the discount at which stocks must trade, and deterring good, honestly-run companies from going public in the first place. It's George Akerlof's lemon discount.

More details in https://webb-site.com/articles/hopeless.asp
Specuvestor: Asset - Business - Structure.

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