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Samuel Yeung

Brokerage Sun Hung Kai & Co (SHK) yesterday said its latest share buy-back offer was a measure to enhance corporate governance, although the offer price was at a 57 per cent discount to the share's net asset value (NAV).

'I believe we have done [the offer] in a way that is very fair to shareholders as well as good for the company,' chief operating officer David Parker said yesterday.

Under the offer, announced on Tuesday night, the brokerage is to repurchase up to 525 million shares, or 21.65 per cent of its share capital, from second-largest shareholder Gold Chopsticks and other public shareholders at HK$1.30 a share.

The repurchase will be funded by 30 HK cents in cash and a five-year loan note of HK$1 bearing 4 per cent interest payable every six months.

The main purpose of the offer is to restore the 25 per cent minimum public float by bringing down the shareholding ratio of Gold Chopsticks, which owns more than 10 per cent of SHK and thus is not considered a public shareholder.

Gold Chopsticks, which is indirectly owned by China Online, has already undertaken to tender at least 152.76 million shares for the offer.

The largest shareholder, AP Emerald, which is indirectly controlled by Allied Group and owns 61.67 per cent of SHK, has given an undertaking that it will not tender any shares.

'Legally speaking, we could have just made the offer to China Online to bring back the public float. But that would not have been fair to all the public shareholders,' Mr Parker said.

However, some commentators were concerned about the deep discount to the share's NAV under the offer.

Although the offer price represents a premium of about 23 per cent to the closing price yesterday, when the shares surged 31.25 per cent on the news, it still means a discount of nearly 57 per cent to the NAV of HK$3.02 per share.

Compared with alternatives, Mr Parker said the buy-back scheme was the best option to restore the public float.

Alternatively, the company could increase its public float by placing old shares, issuing new shares or distributing shares to public shareholders as dividends.

'[In the current market environment], obviously we could only place at a discount [to the market price] . . . those new funds coming in would dilute the interest of the shareholders remaining,' Mr Parker said.

He admitted the administrative costs of running the buy-back scheme could be higher than those of the alternatives. However, 'good corporate governance costs money', he said.

Mr Parker also admitted there was a risk the company might have to take a further measure to restore its public float if all qualifying shareholders tendered their shares under the offer.

This is because in that scenario AP Emerald's holding would effectively increase to 78.7 per cent due to company laws that require a firm to cancel shares it has repurchased.

'It is a risk, but we think the likelihood is pretty slim,' Mr Parker said.

Graphic: shk14gbz



SHK attributes buy-back plan to good governance