New Backer in Sight
• Intrinsic Value S$2.45
• Prev Closing Price S$2.05
On Monday evening, Forterra Trust (Forterra) announced the conditional contract by Nan Fung International Holdings (Nan Fung) to acquire 100% of the equity in Forterra Real Estate (trustee manager) and 29.98% in Forterra (business trust).
Nan Fung is one of the largest privately owned property developers in Hong Kong with HK$19.6bn of securities portfolio and “billions of dollars in annual turnover”. We see this acquisition as a positive development for the trust as Forterra now has an established sponsor which may be capable of injecting new assets. Nan Fung will also gain more exposure into the China commercial real estate trust.
This acquisition is subject to certain conditions including an order striking out of the TAIL Proceedings from the High Court by the creditors against Mr. Richard Barrett and Mr. John Ronan and possible redemption of the Forum Bond – though Forterra has sufficient cash to meet a full bond redemption. The deadline for the acquisition is 31 Aug 2013, unless extended by all parties. Until the acquisition is passed, it is hard to project the change in the existing management and how Nan Fung intends to position Forterra in the future. However, we reckon that things should move to the bright side as the stronger sponsor can back the trust when necessary. We reckon that Nan Fung acquired 29.98% of the shares to avoid having to launch a buyout offer. We are leaving our previous rating and valuation unchanged and will adjust as we attain more visibility about Nan Fung’s plan for Forterra. Maintain Invest.