Prosperity Minerals moves into real estate sector in China


Updated Wed, 02 Jun 2010 00:00:00 GMT

Prosperity Minerals Holdings (LON:PMHL) has announced the next-step in its development as it continues to diversify its business model after it sold most of its Chinese cement businesses earlier this year for over GBP385 million. The company is now set to add real estate operations to its new business structure, with the signing of conditional agreements to acquire property interests in the People's Republic of China (PRC).

"This announcement marks a number of exciting developments for the Company following the successful sale of the Group's cement business", Prosperity Chairman and CEO David Ben Koon Wong commented. "With the proceeds, we have established a real estate division and are now looking to make a number of significant investments".

Prosperity sold most of its Chinese cement business interests to TCCI in April 2010, for GBP385m, in order to focus its investment strategy on its iron ore business and seek expansion into new markets in China.

In line with this investment strategy, Prosperity told investors today that it has recently established a property development and investment division. The new business has already entered into agreement in relation to two separate property investments - in the Fujian Province in south-east China and in Guangzhou City.

Separately in relation to its iron ore business, Prosperity also reported that it has signed a master off-take agreement to buy iron ore from Malaysia. "The proposed Master Off-take Agreement ... is intended to enhance access to a reliable supply of iron ore at a competitive price. Prosperity will benefit from a larger supply of iron ore from Malaysia but will have no obligation to purchase the iron ore ... if the Group is able to source iron ore at a cheaper price elsewhere", Wong added.

"[The real estate deals] will provide the Group with an immediate initial portfolio of property assets which will offer a blend of rental income, profit and capital appreciation through development and resale ... Prosperity is entering a new phase in its development as a Company and I look forward with excitement and confidence to updating shareholders at the time of our results later this year".

According to Prosperity, the PRC's long term urbanisation plan brings increased demand for high-quality housing in China's cities. Furthermore, as the PRC real estate market has recently entered a down-cycle, offering an opportune time to enter the PRC real estate market.

The company also highlighted that the GDP growth and economic development in the PRC, is creating a desire amongst ordinary Chinese citizens to improve their quality of life, and there is strong underlying demand and excellent prospects in the medium to longer term.

In the Fujian Province on south-eastern coast of China, Prosperity has entered into a 50-50 joint-venture with Xiamen Yangguang Shiji Property Development Co Ltd (‘Xiamen Yangguang') to develop real estate on two adjacent sites in Changtai County, Zhangzhou.

The company's wholly-owned subsidiary, Zhejiang Changxing Investment Co Ltd, alongside Xiamen Yangguang, plans to develop a comprehensive resort and residential development project, with a focus on hot spring resort facilities and ancillary high-end residential, commercial and recreational facilities.

Zhejiang Changxing will make an initial investment of RMB195m (c.GBP19.7m) in exchange for a 50% interest in the Fujian JV, and the subsidiary's maximum investment is set at RMB480m (c.GBP48.6m), including the initial investment.

In Guangzhou, Prosperity's wholly-owned Pro-Rise Business Ltd subsidiary has agreed to acquire an investment holding company, Bliss Hero Investment Ltd, from Cheong Sing Merchandise Agency Ltd and Splendid City Ltd. Prosperity's David Ben Koon Wong, and his associates, is together interested in more than 30% of both Cheong Sing and Splendid City.

Bliss Hero directly-owns approximately 11,472 square metres of office and commercial space in Guangzhou City's SilverBay Plaza, and through a 55% stake in Guangzhou Fuchun Dongfang Real Estate Investment Co Ltd, it also has an indirect investment in two land parcels with an aggregate site area of 13,814 square metres.

Fuchun Dongfang is currently building the Dongfang Wende Plaza on the site, the property comprises a 4-floor shopping arcade, and a 5 building high-rise development. In total the Dongfang Wende Plaza will have an aggregate floor area of approximately 164,307 square metres. Construction is currently underway and the development's completion is expected by mid 2011, with pre-sale of two of the residential buildings scheduled for September 2010.

In its iron ore business, through the new off-take deal, Prosperity's wholly-owned subsidiary - Prosperity Materials Macao Commercial Offshore Ltd ('Prosperity Macao') – can now buy iron ore from Grace Wise Pte Ltd, linked to the prevailing regional prices.

Grace Wise was recently formed to acquire the mining operations of certain Malaysian companies. Prosperity Macao said it has had a commercial relationship with these Malaysian companies for a number of years. Additionally, David Ben Koon Wong indirectly owns 70% of Grace Wise.

Between 1st May 2010 and 31st March 2013, Prosperity Macao will have a 'first-option' on the Grace Wise off-take however there is no obligation for the company under the terms of the deal. The agreement sets out a maximum off-take value of over GBP1bn over the three-year period.

Additionally, the company told investors that it is unlikely that it will be able to utilise its share buy-back mandate, in the period between its annual results and its next AGM. Prosperity noted that, since its GBP385m disposal to TCC International, it has received enquiries from shareholders regarding its intention to use the on-market share buy-back approved at the EGM, held on 1 March 2010.

The company said that whilst it is in a closed period, ahead of its annual results, it is unable to make any on-market purchases of its shares. Prosperity noted that the mandate expires at the next AGM. The company said it expects to publish its financial results in late June 2010 / early July 2010, and the AGM is expected to held in September.

Furthermore, Prosperity stated that: "Shareholders should note that the making and timing of any repurchase of the Company's Shares will always be at the discretion of the Board, taking into consideration, amongst other things, the future funding needs of the Company and the then current market price of the Shares".