Macau Property Regulatory News (MPO)

28 February 2018

Macau Property Opportunities Fund Limited

("MPO" or the "Company")

Proposed Disposal of Senado Square Project and Notice of General Meeting

Further to its announcement of 3 February 2018, the Board of MPO announces that it has today posted to Shareholders a circular (the "Circular") setting out the terms of the conditional disposal of the Company's Senado Square retail development project (the "Disposal") and giving notice of a General Meeting at which Shareholder approval will be sought for the Disposal.

The Circular, which contains the notice convening the General Meeting to be held at 12.00 p.m. on Monday, 19 March 2018 at Lefebvre Place, Lefebvre Street, St. Peter Port, Guernsey GY1 4HY, has today been posted to MPO Shareholders, together with the Form of Proxy, for voting on the resolution to implement the Disposal being proposed at the General Meeting.

The Circular has also been submitted to the National Storage Mechanism where it will shortly be available for inspection at www.morningstar.co.uk/uk/NSM. In addition, the Circular will be available to view on at the registered office of the Company, Heritage Hall, Le Marchant Street, St. Peter Port, Guernsey during usual business hours on any weekday (Saturdays, Sundays and public holidays excepted) from the date of this Circular up to and including the date of the General Meeting and at the place of the General Meeting for at least 15 minutes before and during the General Meeting. Defined terms used in this announcement shall have the same meaning as ascribed to them in the Circular.

The Appendix to this announcement sets out an extraction of the letter from the Chairman contained in the Circular without amendment together with an expected timetable of principal events.

For further information:

Company Registration Number 44813

Website: www.mpofund.com 

Manager

Sniper Capital Limited

Doris Boo

Tel: +65 6222 1440

Email: doris.boo@snipercapital.com 

Corporate Broker

Liberum Capital

Richard Crawley / Richard Bootle / Jonathan Wilkes-Green / Henry Freeman

Tel: +44 20 3100 2222

Company Secretary & Administrator

Estera International Fund Managers (Guernsey) Limited

Kevin Smith

Tel: +44 14 8174 2742

Stock Code:

London Stock Exchange: MPO

LEI

213800NOAO11OWIMLR72 

APPENDIX

Letter from the Chairman of MPO

The following is an extract from the letter from Chairman contained in the Circular without amendment.

"Dear Shareholder

1. Introduction

Further to the announcement made on 3 February 2018, I am writing to you to give you further details of the conditional disposal of the Company's interests in the Senado Square Project (the Disposal) for a total consideration of HK$800 million (c. US$102.3 million) (the Purchase Price). The Purchase Price will be satisfied in cash. The Senado Square Project is held through a special purpose company within the Company's Group (the Target Company) and the sale will be effected through the sale of the entire issued share capital of the Target Company, along with certain Shareholder Loans.

The Purchase Price represents a premium of approximately 14 per cent. to the Senado Square Project's valuation of HK$703 million (c. US$89.9 million) as at 31 January 2018 and a gain of 541 per cent. over the acquisition cost of US$16.0 million in October 2007. This translates to a return on investment of 469 per cent. and an internal rate of return (IRR) of 20 per cent. For the 12 month period ended 30 June 2017, no profits were attributed to the Senado Square Project given it is and remains a development asset.

The buyers are Ardent Success Limited and City Universe Limited (together, the Buyer).

Under the terms of a promissory agreement of assignment of shares and shareholder loans (Promissory Transfer Agreement), entered into by certain subsidiaries of the Company, the Group has received a deposit totalling HK$15 million (c. US$1.9 million) (the Deposit), representing c. 1.9 per cent. of the agreed Purchase Price, and will (subject to Shareholder approval at the General Meeting) receive a further HK$785 million (c. US$100.3 million), representing 98.1 per cent. of the agreed Purchase Price, on Completion of the Disposal, which is expected to occur on or before 29 March 2018 (subject to Shareholder approval of the Disposal having first been received).

HK$80 million (c. US$10.2 million), representing 10 per cent. of the agreed Purchase Price, will be pledged as a bank guarantee for a period of six months after Completion. This will be released to the Company thereafter, provided that no past debts, taxes or miscellaneous fees and payments arise during the six- month period.

This Circular provides you with more information concerning the Disposal, the terms of the Promissory Transfer Agreement and related documentation in connection with the Disposal, together with the Resolution of Shareholders necessary to effect the Disposal.

2. Background to and reasons for the Disposal

At the Company's annual general meeting in November 2016, Shareholders were asked to vote on whether the Company should be discontinued in the form it was originally constituted.

My letter in the 2016 Circular explained that after 24 months of decline:

"… the pace of Macau's economic slowdown is easing and the gaming industry, the driver of Macau's economy, is stabilising … The extension of the Company's life will allow flexibility for the Company to take advantage of the expected recovery and afford the potential to realise the full value of its property portfolio rather than undertake a realisation of the Company's assets at potentially lower valuations in the event the life of the Company was not extended beyond 2016."

Shareholders voted against the discontinuation in order to allow flexibility for the Manager to realise value from the Company's real estate portfolio. The Shareholders resolved at the meeting that, going forward, the Company would hold an annual vote as to whether to continue the Company (the first of which will take place in November 2018).

In the interests of realising value for Shareholders, the Manager has (both before and after the November 2016 vote) engaged with agents and held discussions with a number of parties which had expressed interest in acquiring some or all of the Company's real estate portfolio.

While the Company has had some success in disposing of smaller assets, particularly within the last 12 months, the divestment of higher-value assets has proven more challenging. Demand from mainland Chinese investors - previously key participants in the Macau market - has been subdued, largely due to tight scrutiny by China's central government of capital outflows and outbound property investment. Macau's own anti-speculation policies have also curbed investors' purchasing power.

My statement accompanying the annual report and accounts to 30 June 2017 commented:

"Today, Macau's prospects are looking much brighter. Gaming revenue has rebounded for 13 consecutive months, returning the economy to growth. In tandem, property values have begun to recover. … Having navigated through the downturn, our overriding focus is now on realising asset values into the recovery. With this in mind, the Board is continuing to assess all forms of potential divestment options that might benefit shareholders."

Since 30 June 2017 the economic recovery in Macau has continued. Gaming revenue increased by 19.1 per cent. for the year to 31 December 2017 and gross domestic product increased by 6.1 per cent. year on year for the third quarter of 2017. Looking ahead, Macau's economy should benefit in 2018 from the completion of some large infrastructure projects, most notably the 30 kilometre Hong Kong-Zhuhai- Macau bridge, the opening of two more large integrated casino resorts and Beijing's aim to assist Macau to diversify its economy and become a top-ranked tourist destination as expressed in the Chinese government's 13th Five-Year Plan. This should support the continued steady, if gradual, improvement in both sentiment and property prices which should facilitate further divestment of the Company's portfolio. Risks do however remain to Macau's recovery including the Chinese central government's ongoing efforts to curb outbound capital flows.

In accordance with the Company's accounting policies, the Senado Square Project is classified within Inventories in the Company's balance sheet for the period ended 30 June 2017. The Senado Square Project is carried at the lower of cost and net realisable value, which equated to US$17.3 million. This is reflected in the pro forma statement of net assets set out in Part 4 of this Circular on page 18. The valuation of the property as at 30 June 2017 (the date of the last published audited numbers) was US$84.8 million, and the valuation as at 31 January 2018 was US$89.9 million. The better outlook for Macau's economy (as described in the paragraph above) has been the contributing factor that has led to the higher valuation as at 31 January 2018.

The total Purchase Price payable under the Disposal of the Senado Square Project represents an approximate 14 per cent. premium to the 31 January 2018 valuation, offering a significant premium to current valuation and to all previous offers. The offer also represents a gain on cost since October 2007 of 541 per cent. which translates to an IRR of 20 per cent. Having acquired the property in 2007, secured vacant possession, consolidated ownership, achieved architectural planning consents and now approaching development stage, many of the development hurdles have been overcome and the Manager has already achieved much of the value creation for this project. A sale at this time will therefore capture the vast majority of the targeted IRR, while at the same time removing the development risk associated with completing the Senado Square Project.

Furthermore, the opportunity to realise cash on a large proportion of the Company's portfolio secures the financial position of the Company and its ability to negotiate further divestment from a position of strength, to repay debt and to return cash to Shareholders as soon as is reasonably practicable.

Due to size of the Disposal, the Disposal constitutes a Class 1 transaction for the purposes of the Listing Rules. Accordingly, as required by the Listing Rules, an ordinary resolution approving the Disposal will be proposed to Shareholders at the General Meeting and the Completion of the Disposal will be conditional on the passing of this Resolution. All Shareholders will be able to vote on this resolution.

A summary of certain possible risks associated with the Disposal is set out in Part 2 of this Circular. The proposed Resolution to approve the Disposal is set out in the Notice of General Meeting at the end of this document.

3. Information on the Senado Square Project and the Target Company

The Senado Square Project is the Company's flagship retail development, strategically located in the UNESCO-listed heritage district of downtown Macau. This redevelopment project is in the advanced planning phase and has been designed by internationally renowned architecture firm, Arquitectonica. The proposed contemporary, iconic design will have a gross floor area of 67,800 square feet of prime retail floor space and will, upon completion, offer a brand new shopping and dining experience catering to both locals and tourists. The Senado Square Project comprises a development site (excluding a basement level) situated at Travessa do Roquete Nº 11, Rua da Se Nºs 9 - 11 in Sé, Macau.

The real estate assets comprised in the Senado Square Project were valued at HK$703 million (c. US$89.9 million) as at 31 January 2018 and are held through the Target Company. As described above, the Disposal is structured as a share sale of the Target Company under the Promissory Transfer Agreement. The Target Company is a special purpose vehicle which has no activity other than holding the Group's interest in the Senado Square Project. In addition to acquiring the Target Company, the Buyer will also be assigned certain Shareholder Loans issued by subsidiaries of the Company to the Target Company.

Further information on the Senado Square Project and its valuation is set out in Part 3 of this Circular under "Property Valuation Report". The valuation as certified in the Property Valuation Report represents the value of the Company's interests in the Senado Square Project, which comprises twenty-four strata-title units, that made up of the entire residential building located at Travessa do Roquete no. 11 and Rua de Sé no. 9 to 11 in Macau, excluding the basement level.

4. Information on the Continuing Group

Once the Disposal has been completed, the Company will continue to hold real property assets. The Senado Square Project represented 19.9 per cent. of the Company's property portfolio gross assets as at 30 June 2017 and the anticipated effect of the Disposal on the Company's net asset position as at 30 June 2017 is set out in the pro forma statement of net assets in Part 4 of this Circular on page 18.

All potential divestment options for the remaining assets within the Continuing Group are continuing to be assessed with the goal of maximising exit values. Until such time, the Continuing Group will continue to operate in accordance with its Investment Policy and remain listed.

5. Summary of the Promissory Transfer Agreement and the Lock-up Agreement

In connection with the Disposal, the Sellers (being subsidiaries of the Company) have entered into the Promissory Transfer Agreement with the Buyer. Under the terms of the Promissory Transfer Agreement, the Company has agreed to sell (conditionally upon Shareholder approval having been received prior to 29 March 2018) the Senado Square Project through the transfer of the entire issued share capital of the Target Company and the assignment of Shareholder Loans to the Buyer for the Purchase Price of HK$800 million (c. US$102.3 million).

The Purchase Price is payable in two components: the Deposit of HK$15 million (c. US$1.9 million) that was paid by the Buyer upon signing of the Promissory Transfer Agreement, with the balance of HK$785 million (c. US$100.3 million) being payable on Completion. Completion is conditional upon approval by Shareholders of the Resolution. The Company expects Completion to occur on or before 29 March 2018.

Other than the Shareholder Loans, the Buyer will acquire the Target Company free of external debt and third party contracts. Accordingly, the Group will be required to satisfy all outstanding principal and interest on third party financing held by the Target Company prior to Completion. As at the date of this Circular, the principal and interest outstanding are MOP$121.54 million (c. US$15.1 million) and MOP$220,153 (US$27,321), respectively.

The Group will be required to provide a bank guarantee for the amount of HK$80 million (c. US$10.2 million), representing 10 per cent. of the agreed Purchase Price, for a period of six months after Completion to cover any past debts, taxes or miscellaneous fees and payments arising during the six-month period. Upon expiry of the bank guarantee, the Company and one of its Macanese subsidiaries will jointly provide a corporate guarantee of HK$20 million (c. US$2.6 million) to insure the Buyer against pre-Completion debts, taxes or miscellaneous fees and payments for a further period of six months.

Under the terms of the Promissory Transfer Agreement, the Group is required to pay HK$15 million (c. US$1.9 million) compensation, in addition to the return of an amount equal to the Deposit paid, to the Buyer in accordance with local law and practice should the Group fail to comply with its contractual obligations (including as to completion of the Disposal). The Promissory Transfer Agreement also contains customary warranties and indemnities given by the Group in favour of the Buyer.

Pursuant to the Lock-up Agreement, the Group has also agreed not to sell or agree to sell the Senado Square Project and the Target Company to another purchaser within a period of 10 months from the Promissory Transfer Agreement date of 2 February 2018 (should the Disposal not proceed through the fault of the Group or if Shareholder approval for the Disposal is not obtained).

The principal terms of the Promissory Transfer Agreement are set out in Part 5 of this Circular.

6. Financial effects of the Disposal

If the Disposal is approved by Shareholders and Completion occurs, the Company expects to return cash to Shareholders in line with the Company's divestment strategy. Any return of such cash will be in the form that the Board considers to be most appropriate, subject to the retention of sufficient working capital for the Company's ongoing operation. Further details of the proposed return of sale proceeds will be announced in due course.

Information on the expected effect of the Disposal on the assets and liabilities of the Continuing Group is set out in the pro forma statement of net assets of the Continuing Group as at 30 June 2017 in Part 4 of this Circular.

7. Risk factors

The Directors have given consideration to the potential risks and uncertainties relating to the Disposal.

For a discussion of certain risk factors which Shareholders should take into account when considering whether to vote in favour of the Resolution, please refer to Part 2 of this Circular.

8. General Meeting

At the end of this Circular, you will find a Notice of General Meeting of the Company, convening a general meeting which is to be held at Lefebvre Place, Lefebvre Street, St. Peter Port, Guernsey GY1 4HY at 12.00 p.m. on Monday, 19 March 2018.

A summary of the action you should take is set out in the paragraph below and in the Form of Proxy that accompanies this Circular. The Resolution seeks the approval of Shareholders for the Disposal (as described in Part 5 of this Circular).

The full text of the Resolution to be proposed at the General Meeting is set out in the Notice of General Meeting at the end of this Circular. The Resolution will be proposed as an ordinary resolution and the passing of such Resolution requires a simple majority of the votes cast in person or by proxy.

Irrevocable undertakings to vote in favour of the Resolution have been received from Shareholders representing more than 50 per cent. of the Company's issued share capital as at 27 February 2018, being the latest practicable date prior to the publication of this Circular.

9. Action to be taken by Shareholders

If you are a Shareholder, you will find enclosed with this document a Form of Proxy for use at the General Meeting.

Whether or not you intend to be present at the General Meeting, please complete the Form of Proxy for the General Meeting in accordance with the instructions printed thereon and return it to the Registrar at the address indicated on the front page of this document, as soon as possible, but in any event so as to arrive not later than forty-eight hours (excluding non-working days) before the time appointed for holding the General Meeting.

The completion and return of a Form of Proxy will not preclude you from attending the General Meeting and voting in person if you wish to do so.

10. Further information

Your attention is drawn to the further information set out in Parts 2 to 6 of this Circular. You should read the whole of this Circular and, in particular, the risk factors set out in Part 2, before deciding on the course of action you will take in respect of the Resolution.

11. Recommendation

The Board considers the Disposal to be in the best interests of the Company and Shareholders as a whole.

Accordingly, the Board recommends Shareholders vote in favour of the Resolution, as they intend to do in respect of their own beneficial holdings which, as at 27 February 2018, being the latest practicable date prior to the publication of this Circular, amount in aggregate to 13,485,164 Shares, representing approximately 17.64 per cent. of the Company's existing issued share capital.

Yours faithfully

Chris Russell

Chairman"

Expected Timetable of Principal Events

Each of the times and dates in the expected timetable may (where permitted by law) be extended or brought forward without further notice and in particular the dates relating to the Disposal are provisional only. If any of the above times and/or dates change, the revised time(s) and/or date(s) will be notified to Shareholders by an announcement through a Regulatory Information Service. All references to times in this document are to London time.