Hong Kong-listed warehouse developer ESR Group gets takeover bid from US consortium led by Starwood Capital

Starwood Capital Group, one of the largest real estate investors worldwide, is part of a consortium of shareholders proposing to take Asian warehouse developer ESR Group private, according to a filing to the Hong Kong stock exchange.

The consortium comprising Starwood and two other US firms, SSW Partners, and Sixth Street, owns 15.7 per cent of ESR. It put forward its "non-binding and conditional proposals" to the property investment fund manager on April 25 for "a possible privatisation of the company", that could result in a delisting if it went ahead.

"Under the indicative proposal, it is contemplated that shareholders will have the ability to choose to receive cash consideration or roll their shares into the go-forward private company, subject to the terms of the final rollover arrangements," ESR Group director Brett Harold Krause said in Monday evening's filing on behalf of the board.

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No price or financial terms were mentioned in the filing, as the company said the discussions were at a preliminary stage only.

Warburg Pincus, the largest shareholder of ESR, with a 14.04 per cent stake, is not part of the consortium.

However, ESR said Warburg and the company's founders are "in discussions with the consortium and they are welcoming of the indicative proposal and believe that it is in the best interests of the shareholders".

The founders - Stuart Gibson, Charles de Portes, and Shen Jinchu - own a combined 7.43 per cent of the company.

ESR has formed an independent board committee and has appointed Citigroup Global Markets Asia as a financial adviser to evaluate the proposal.

Shares of ESR were suspended on Monday pending the announcement. They rose 12 per cent last Friday to close at HK$10 (US$1.30), but are still 13 per cent down over the last year. The company has applied to resume trading on Tuesday.

ESR raised HK$14 billion (US$1.8 billion) in an initial public offering in Hong Kong in 2019, and had a market capitalisation at HK$42.12 billion on Friday. The company manages real estate assets in mainland China, Japan, South Korea, Australia, Singapore, India, and New Zealand.

The potential privatisation of ESR is the latest in a wave of similar deals in Hong Kong, though the recent market rally may put an end to the trend, according to stockbrokers.

"It is very difficult to complete privatisation deals amid a market bull run because some investors may want to wait for the share prices to go up further instead of accepting the privatisation offer," said Tom Chan Pak-lam, permanent honorary president of the Institute of Securities Dealers.

When a company decides to go for a privatisation deal, the controlling shareholder or certain major shareholders make a general offer to all other shareholders to buy their shares.

Under Hong Kong regulations the threshold is high, requiring 90 per cent of shareholders in terms of the value of the shares to accept the offer for the proposed privatisation to go ahead. Many privatisation proposals fail because they cannot reach that level of support.

The benchmark Hang Seng Index has gained more than 16 per cent since the China Securities Regulatory Commission (CSRC), the mainland's securities watchdog, last month unveiled five measures to support Hong Kong's capital market and enhance cross-border trading.

At one point it rose 20 per cent from a January low, a gain that put it into bull market territory.

Before the recent rally, the Hang Seng Index was among the world's worst performers, something that triggered a lot of privatisation offers.

Hong Kong-listed firms were involved in US$4 billion worth of take-private deals as of mid-March, before the bull run, compared with US$1.2 billion for the whole of last year, according to data from Dealogic.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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