HK $9.882 billion sale of China Overseas Building and Haihua 5

China Overseas Development Co., Ltd. announced on the evening of May 11 that it intends to sell its overseas building and Haihua 5 to China Construction SPV and overseas SPV companies respectively, with the total cost of about HK $9.982 billion.

On May 11, CNOOC and its wholly-owned subsidiaries Dingsheng, CSCEC and its wholly-owned subsidiary, China Construction SPV, concluded a sale agreement for overseas buildings in China, according to the announcement. Accordingly, CSCEC SPV purchased the sales shares of China Building (i.e. all issued equity of overseas building company of China) and sales loan from Dingsheng, with the purchase cost of about HK $4.811 billion (adjustable).

The data show that the overseas building of China is located in Wanchai District, Hong Kong, with a total building area of about 217800 square feet. At present, the Hong Kong registered office and main business place of CSCEC are located in the building. According to the evaluation by the independent property appraiser of CNOOC, the market value of Overseas Building in China was HK $4.65 billion on April 30, 2016, while the audited comprehensive net assets of overseas building company of China Overseas Building Company on April 30th, 2016 were HK $2.37 billion.

After the transaction is completed, China Overseas Building Company will no longer be a subsidiary of CNOOC and will no longer be integrated into the financial statements of CNOOC. Based on the initial cost of overseas buildings in China (excluding the amount of loans to be sold by overseas buildings in China) and the estimated net liabilities of overseas buildings in China, CNOOC estimates that the potential net profit of overseas buildings sold in China will be about HK $1.481 billion.

China Overseas Group is a controlling shareholder of China construction. China Construction said that the acquisition of Overseas Building in China can enhance its brand and corporate image and promote the development of the group's business.

In order to complete the acquisition, CSCEC will also issue and issue 432million subscription shares to overseas China group at HK $11.14 per share, and the acquisition and subscription matters will be completed simultaneously.

In addition, CNOOC, CNOOC real estate, overseas China group and its wholly-owned subsidiary, China Overseas SPV, also signed a sales agreement of Haihua 5 on the same day. According to the agreement, CNOOC sold overseas SPV shares (i.e. all issued shares of Haihua 5) and sales loans to China Overseas SPV at a price of about HK $5.071 billion (adjustable).

The new media of view real estate learned that Haihua 5 is a wholly-owned subsidiary of CNOOC real estate, which owns Haihua 5. On April 30, 2016, the unaudited comprehensive net assets of Haihua 5 company were about HK $271million. The unaudited comprehensive net profit for the years ended December 31, 2014 and December 31, 2015 was about HK $1 million and HK $2 million respectively.

After the completion of the sale of Haihua 5, Haihua 5 company will no longer be a subsidiary of CNOOC, and the accounts of Haihua 5 will no longer be integrated into the financial statements of CNOOC.

Based on the initial cost of Haihua 5 (excluding the amount of the sales loan of Haihua 5) and the estimated NAV of Haihua 5, CNOOC estimates that the potential net profit of the sale will be about HK $50million.

In the announcement, China Sea said that the funds obtained from the two exchanges are intended to be used for general enterprise purposes. The directors believe that the sale of overseas buildings and Haihua 5 will provide a good opportunity for the group to sell and realize non core asset investment, and will reduce the amount of continuous connected transactions between the group and its related persons, which will help to alleviate some of the group's compliance burden.