20-11-12 - PYI Subsidiary Paul Y. Engineering Acquires a HK$2.0 Billion Luxury Hotel Site in Cotai, Macau

Bulk cargo port and infrastructure group PYI Corporation Limited (“PYI”) (0498.HK) and its 62%-owned subsidiary, Paul Y. Engineering Group Limited (“PYE”) (0577.HK) jointly announced that PYE has proposed a very substantial acquisition of a private company, Falloncroft Investments Limited (“Falloncroft”) for a total consideration of HK$2,000 million (“Acquisition”).

On completion of the Acquisition, Falloncroft will have exclusive contractual rights in respect of a 65,000 sq ft land parcel located on the Cotai Strip in Macau, on which a 945,000 sq ft super luxury exclusive hotel, casino and retail complex is proposed to be built. Falloncroft has also signed an MOU with an affiliate of one of the gaming concessionaires for the management and operation of the proposed casino. Paul Y. Construction has been engaged as the design-build manager for the development. The gross development budget is established at around $6,500 million.

The Acquisition is conditional upon PYE raising minimum gross proceeds of HK$3,200 million from the placing by CLSA of a minimum of 1,176 million new shares at the placing price of HK$0.68/share (amounting to HK$800 million) and up to HK$2,400 million worth of additional new shares and/or convertible bonds (“CB”) which, together with an upsize option to place a further HK$1,600 million worth of new shares and/or CB, arrives at a gross amount of up to HK$4,800 million (the “Placing”) as well as from the Contingent Placing (as defined below). Furthermore, PYE has also appointed 3 placing agents to place a total of up to HK$1,600 million worth of CB (“Contingent Placing”). The 12-year zero-coupon CB are convertible into new shares at HK$0.68/share at anytime during the tenure. Early redemption of the CB at the sole discretion of PYE is allowed after the 5th anniversary at a redemption premium of 5% p.a.

PYE also declared a special cash dividend of HK$0.26/existing share (“Cash Dividend”) with a scrip option to subscribe for new shares at HK$0.68/share. The Acquisition, Placing, Contingent Placing and Cash Dividend are inter-conditional on each other and will be subject to the approval by PYE shareholders.

PYE also proposed to effect a distribution in specie to all existing PYE shareholders of 49% of PYE BVI, an unlisted company, under which the entire existing construction, civil engineering and property-related businesses are held (“Distribution”). Upon completion of the Distribution, PYE BVI will be held as to 51% by PYE, 30.34% by PYI and 18.66% by other PYE shareholders. With a view to provide liquidity to the other existing PYE shareholders, PYI has undertaken to acquire up to the full 18.66% stake held by them at the price of HK$0.30/share, for an aggregate cash sum of up to HK$69.34 million (“Cash Alternative”). The Distribution is subject to the approval by PYE shareholders other than PYI as well as being conditional on the completion of the Acquisition, Placing, Contingent Placing and Cash Dividend.

The Placing and Contingent Placing, which will lead to a deemed very substantial disposal for PYI, is also subject to the approval by PYI shareholders.

Ir James Chiu, Chairman of PYE, said, “The proposed transactions will allow PYE to tap into the promising hotel and gaming industry in Macau. It will unlock tremendous value for the existing PYE shareholders while offering them maximum flexibility in making their investment decision. This strategic move not only allows PYE to diversify our business activities, but also facilitates our existing construction arm to plant a firmer and more significant foothold in Macau.”

Mr. Tom Lau, Chairman and Managing Director of PYI, said, “We support this diversification of PYE and believe the proposal is value accretive for both PYI and PYE and their shareholders as a whole. The transactions will lead to a profit of some HK$164 million for us. We are committed to offer the other existing PYE shareholders maximum flexibility and liquidity by way of the Cash Alternative. PYI will benefit from the high growth hotel and gaming industry in Macau through PYE while maintain significant direct interests in its existing engineering and construction businesses.”

Upon completion of the transactions, Mr. Stephen Hung, Mr. Peter Coker and Mr. Walt Power will join the PYE board in order to strengthen the skills and capabilities of the board. As the business dynamic of PYE will undergo significant change, Ir James Chiu intends to step down as Chairman of PYE following completion of the Acquisition and it is intended that Mr. Coker and Mr. Hung will take up the position of Joint Chairman of PYE while Mr. Power will act as the CEO.

By virtue of Mr. Hung being a proposed director of PYE and father of vendor’s owner, the Acquisition becomes a connected transaction of PYE, which requires the approval by PYE shareholders.

Mr. Stephen Hung, Chairman of Falloncroft and Joint Chairman of PYE upon completion of the proposed transactions, said, “We are planning to deliver a very unique ultra-luxurious entertainment lifestyle to a small elite group of uncompromising guests which combines exclusive gaming experience with extravagant accommodations; by-invitation-only haute joaillerie, couture and atelier shopping; grands chef gastronomie; and indulging personalized service. I am extremely honored to be part of PYE which possesses the necessary construction expertise and experience to make this a reality.”

As completion of the various transactions is, in each case, subject to the fulfillment of a number of conditions precedent which, apart from the Distribution, are all inter-conditional, the various transactions may or may not proceed. Shareholders and potential investors should exercise caution when dealing in the shares of PYE and, or, PYI.