Mandarin's Missed Opportunity

Mandarin's Missed Opportunity

Bloomberg·2017-09-27 17:51

Jardines should have taken the money.

Mandarin Oriental International Ltd., a unit of the British conglomerate, scrapped the sale of Hong Kong's iconic Excelsior Hotel on Wednesday after bids failed to meet its price tag.

Shareholders of Mandarin Oriental showed what they thought of the decision by driving the company's stock down more than 30 percent in Singapore. The shares had surged in anticipation of a sale, gaining 119 percent this year through Tuesday.

Checked Out

Mandarin Oriental shares slumped after it scrapped the sale of The Excelsior

Source: Bloomberg

Let's be clear: Mandarin Oriental hasn't disclosed the price it was seeking, nor has the value of the offers been made public. Local media reportshave pegged the bidding level at HK$30 billion ($3.8 billion), while Colliers International has estimated the hotel's value at HK$25 billion to HK$27 billion.

Yet considering the identity of the reported bidders and the frothy state of Hong Kong's property market, it's unlikely that proposals were on the stingy side.

The 869-room hotel attracted at least five bids, including a Chinese-backed consortium of Sun Hung Kai Properties Ltd. and Hysan Development Co., and a tie-up between Hong Kong's Chinese Estates Holdings Ltd. and its longstanding mainland ally China Evergrande Group, the Hong Kong Economic Journal reported earlier this month.

Evergrande, Hong Kong property watchers won't need reminding, forked out a record HK$12.5 billion for the Mass Mutual Tower in 2015. That was the most ever paid for a commercial building in the city at the time, though since surpassed by Henderson Land Development Co.'s HK$23.3 billion purchase of a car park site in May this year.

Even at the lower end of Colliers' range, The Excelsior would have set a fresh record for a commercial property in the city. 

The four-star hotel has a storied history, occupying the first site to be auctioned in Hong Kong as a British colony in 1841. It featured in a Pink Panther movie in the 1970s and is linked by an underground tunnel to the Noonday Gun immortalized by Noel Coward.

More importantly, for potential buyers, it sits in the Causeway Bay district that frequently tops surveys of the world's most expensive shopping areas. Mandarin Oriental has a permit to turn the 45-year-old hotel into a commercial building.

Granted, Beijing has started frowning on overseas real estate purchases as "irrational" and that may have dulled the ardor of mainland bidders. Nevertheless, it's hard to imagine that none of the interested parties put forward an acceptable price.

Up, Up and Away

Commercial property prices in the area where Excelsior is located have been soaring

Source: Colliers, Bloomberg Intelligence

Mandarin Oriental said it will now review options including redeveloping the site into a commercial property. That undertaking looks well beyond the company's means, considering its current market cap of $2.4 billion -- less than two-thirds of the mooted value of The Excelsior.

While the decision is a blow for Mandarin Oriental shareholders -- who might have hoped for a bumper special dividend after the sale -- it's also a setback for investors in parent Jardine Matheson Holdings Ltd. 

Beating Superman

Jardine Matheson's stock has outperformed that of Li Ka-shing's CK Hutchison in the past year

Source: Bloomberg

Jardine stock may have outperformed Li Ka-shing's CK Hutchison Holdings Ltd. in the past year, but shareholders haven't seen the returns they might have expected.

While rivals such as Wharf Holdings Ltd. have spun out investment properties and Li's CK Asset Holdings Ltd. and New World Development Co. have bought back stock, Jardine Matheson's Hongkong Land Holdings Ltd. has sat on its hands. That's despite low leverage at the unit, which is the biggest landlord in Hong Kong's central business district.

With the abandoned sale of The Excelsior, Jardines risks once again being seen as a fiefdom with high quality assets that prefers to keep them in the family, however propitious the conditions for a sale may be.

This looks like a missed opportunity.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story: Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

To contact the editor responsible for this story: Matthew Brooker at mbrooker1@bloomberg.net

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