And on that bombshell

10 June 2015 By John Foley Follow @johnsfoley

Renhe’s model of turning bomb shelters into malls has run aground. Now it is buying farmers’ markets for $839 mln, to bring in enough cash to keep the lights on. The catch: it’s buying at a premium from the chairman’s wife. Shareholders might hate it, if they had an alternative.

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Renhe Commercial Holdings said on June 10 it would buy an operator of Chinese agricultural markets for a headline price of HK$6.5 billion ($839 million) including debt. The main owner of the unlisted business is Zhang Xingmei, the wife of Renhe chairman Dai Yongge.

The deal would be funded by an issue of shares with a notional price of HK$0.41 each. Renhe’s shares closed on June 9 at HK$0.82, having run up 86 percent in the 13 days before the transaction was announced. Renhe would buy equity which it valued at HK$5 billion, and a loan from China Minsheng Bank of HK$1.5 billion.

Renhe paid back $660 million of offshore bonds using the proceeds of a rights issue and new bank borrowings in January. A further $79 million of bonds were repaid as they matured in May, leaving $161 million of offshore bonds outstanding.

The company has stopped building new malls after its revenue from selling shopping centres, which it converts from underground air defence shelters, collapsed in 2014. It reported a 1.7 billion yuan ($276 million) net loss in 2013 and the same amount again in 2014, driven partly by write-downs of its existing projects.

Shareholders, not including Dai and his wife, are entitled to vote on the transaction. After the deal, Dai and Zhang would together have a 51 percent stake. Somerley Capital is acting as an independent adviser.

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