(SinoCast China Financial Watch)
Updated: 2007-10-26 09:25

Shanghai Industrial Holdings Limited will become the controlling shareholder of Urban Development by acquiring a 19 percent stake in the latter, according to sources yesterday.

The Hong Kong listed company is the sole submitting letter of intent to purchase the 19 percent stake in Urban Development and paying the guarantee money before October 19, the deadline for the stake sale, said a spokesman of Shanghai United Assets & Equity Exchange (SUAEE).

If there is only one intended recipient, the transferor can discuss about the transferring price with the intended recipient directly, according to regulations of SUAEE.

Upon their negotiation, the final price for the stake was determined equal as the quoted market price, namely 1.5678 billion yuan ($214.52 million). Latter, the two parties will handle some procedures to conclude the stake transfer formally.

Insiders note that by the move, Shanghai Industrial Holdings extends to enrich and strengthen the real estate business block so as to make itself a regional development integrator; and for Urban Development, this is an important step to find a way to the international capital market.

Urban Development possesses two real estate projects of Urban Cradle and Yujiahui Center, in which it invested 6 billion yuan and 20 billion yuan, respectively. The former will bring huge profits to it in the following three years, and the latter will make profits in 2010.

On June 28 this year, Shanghai Industrial Holdings purchased a 40 percent stake in Urban Development with an investment of 2.13 billion yuan, which was taken as its first step of the expansion in the real estate market.

Cai Laixing, president of Shanghai Industrial Holdings, said on September 1 in Hong Kong that he expected to increase the stake in Urban Development to be above 51 perecent. Urban Development confirmed as well that the motion had been passed at the employees' representative meeting. And then, Urban Development offered the 19 percent stake on the website of SUAEE on September 18.

Urban Development imposed high requirements on the recipient of the 19 percent stake, requiring that the recipient should not transfer and mortgage the stake within five years without the approval of the other shareholders. Meanwhile, it also stipulated that the intent recipient's net assets should not be less than 5 billion yuan, debt to asset ratio no more than 30 percent, and making profits for three years in a row.

An analyst with Haitong Securities said that a good many companies contacted Urban Development, including Vanke. But the authority wanted Urban Development to be integrated by a local enterprise, and Shanghai Industrial Holdings is doubtlessly the first choice.

As a matter of fact, the high requirements imposed by Urban Development were also to shut out companies from other provinces and ensure the successful acquisition of Shanghai Industrial Holdings.

Shanghai Industrial Investment (Holding) Co Ltd, the parent company of Shanghai Industrial Holdings, will integrate Urban Development into its real estate business after the conclusion of the deal, according to sources.

Urban Development will benefit from the deal as well, said its general manager Ni Jianda. Additionally, the company will not change the established strategic objectives and procedures.

Urban Development will remain independent after Shanghai Industrial Holdings takes a controlling stake. When working out strategies, the company did not pay too much attention to the possible change of the controlling shareholder, said Ni Jianda.

In addition, Shanghai Industrial Holdings will not intervene with the company's daily operations, and its investments will be allotted and used by Urban Development uniformly.