Hong Kong-listed Kowloon Development Co has acquired a controlling stake in a local State-owned property developer, triggering a new round of State-owned enterprise (SOE) restructuring.

The two biggest shareholders of Shenzhen Properties & Resources Development (Group) Co, listed in Shenzhen, transferred a total of 380.86 million non-tradable State and legal person shares to Brilliant Idea Investments Limited, a new investment vehicle for Kowloon Development, last Friday, the Shenzhen company said in an announcement yesterday.

The transferred shares account for nearly 70.3 per cent of the company's total shares.

The deal was struck at 1.20 yuan (14 US cents) per share at a premium of 15 per cent based on the company's audited net assets of last year-end, or roughly 458.6 million yuan (US$55.4 million).

The transaction is still dependent on final approval from the Ministry of Commerce. Once approved, Kowloon Development will be the first Hong Kong company to have a controlling stake in the locally listed property company.

The marriage between the Hong Kong and Shenzhen property developers is a strategic move by the local government to shake up its sluggish SOEs.

The government decided to dump the shares and introduce new strategic investors in Shenzhen Property at a working conference last February in an attempt to enhance its competition in the market.

As one of the long-established property developers in Shenzhen, Shenzhen Property recorded revenue of 1.3 billion yuan (US$160.1 million) in the fiscal year ended December 31, 2004 with 0.167 yuan (US$0.02) earning per share.

However, rental revenue from many of its older property projects, the major contributor to its revenue, began slipping and it is short of funds to acquire new land from bidding to enrich its portfolio.

The acquisition by Kowloon Development will not only bring in sufficient capital, but also valuable experience to revamp old residential projects and realize new commercial value, said Ban Qiu, a market analyst.

Kowloon Development recorded a 50 per cent surge in profit to HK$303 million (US$46.6 million) last year.

The local government, which first sold its stakes in SOEs through international bidding in the country, pledged to continue to pursue the restructuring of SOEs yesterday.

Guo Limin, director of Shenzhen State-owned Assets Management Office, told a working conference that the government will transfer all the State shares in seven SOEs this year.

Source: China Daily