Date
18 October 2017
After two spin-off exercises in recent years, Xinyi Glass chairman Li Xianyi (left) now controls three listed companies in Hong Kong. Photo: HKEJ
After two spin-off exercises in recent years, Xinyi Glass chairman Li Xianyi (left) now controls three listed companies in Hong Kong. Photo: HKEJ

Benefits of spinning off subsidiaries

The new listing market appears to have regained it momentum as the overall stock market continues to strengthen, bolstered by events like the approval of Shenzhen-Hong Kong stock trading link.

There were 23 new listings in July, the most this year, including three spin-offs.

Two of these spinoffs are Xinyi Automobile Glass Hong Kong Enterprises (08328.HK), a unit of Xinyi Glass Holdings (00868.HK), and Lifestyle China Group (02136.HK) from Lifestyle International Holdings (01212.HK).

Both Xinyi Glass and Lifestyle International have divested subsidiaries for spin-off listings twice within the past three years.

Xinyi Solar Holdings (00968.HK) was carved out in December 2013, and Lifestyle Properties Development (02183.HK) was listed in September 2013.

What has motivated Xinyi and Lifestyle to spin off those units?

For starters, spin-off can generate one-off income. For example, turning Xinyi Solar into another entity has brought an extra gain of HK$1.3 billion for Xinyi Glass in its 2013 annual results.

That represents 35 percent of the company’s operating profit of HK$3.67 billion that year.

However, since Xinyi Automobile Glass Hong Kong Enterprises has a market cap of only HK$380 million, much smaller than Xinyi Solar’s, its impact will be limited.

The status of being a listed company is also getting more valuable, which means it can be sold for a good price.

For example, about a year after spinning off Wing Lee Property Investments (00864.HK), Mega Medical Technology (00876.HK) decided to sell a 70 percent stake in the unit in April 2014.

By spinning off subsidiaries, a company can also create an additional fundraising platform.

Investors can benefit from the spin-off listing, too, as a carve-out deal would revalue the unit, and make its financial and company structure more transparent, which often helps unleash its true value.

This article appeared in the Hong Kong Economic Journal on Aug. 24.

Translation by Julie Zhu

[Chinese version 中文版]

– Contact us at [email protected]

CG

Department of Investment Analysis at HKEJ

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