China New Town Devt

China New Town Devt (CNTD): China Devt bank (CDB) has expressed an interest to subscribe for 3b shares (40% stake) in CNTD at a price of HK$0.246 (approx S$0.04) per share. SRE Invmt (SREI), the controlling sh/h of CNTD, currently holds a 32.6% stake, and expects dilution to 19.6% of the enlarged share base. CDB shall be entitled to nominate directors to the Board, and the total no. of directors shall be further agreed upon. SREI shall acquire from CNTD, assets not relating to the main principle business of planning and dev of new town projects in the PRC, ie. non-land devt assets, within 12 mths from the date of completion of the above transaction, at a price higher of, i) prevailing book value, or ii) independent valuation. As CDB will cross the 30% shareholding level, it will apply for a whitewash waiver to avoid making a mandatory takeover offer. CNTD notes that new town devt is capital intensive and requires significant initial capex. The group currently operates only three new town projects in the PRC and has not been expanding into new projects. Operating results have been lumpy due to infrequent land sales. The co believes it will have strong synergies with CDB, which has been supporting urbanization projects in the PRC over the last decade. Expects the strategic involvement of CDB could enhacne the group’s competitiveness and credit profile. CNTD expects proceeds from the sh subscription to enhance the co’s capital structure and working capital. In addition, the intended disposal of non-core assets would reduce the operating losses and enable the group to focus on profitability at its new town devt business. Note the agreement is currently a non-binding memorandum of understanding (MOU) and does not constitute the parties’ legally binding commitments. At last close at $0.114, the counter trades at 0.8x P/B. P/E is not meaningful as the co just about broke even in FY12.