Chow Group never tapped the public for capital after buying listed shell in 2016

Friday 1st June 2018

Chow Group went public in 2016 through a reverse listing with big plans to raise capital to bankroll a portfolio of accommodation and hotels but two years on it hasn't sought funds and will go private again.

Officially the listed vehicle for businessmen John and Michael Chow objects to NZX's proposal to abolish its small-cap market and offer all companies a slot in the main market on better terms. The brothers, who have built a property business on the back of a family takeaway in Wellington along with strip clubs and brothels, say they have ready access to private funding.

There wasn't much opposition. The Chows held almost 90 percent of the company and went over that threshold this week, meaning they could force the remainder private. Minority shareholders include IRG's Brent King, whose new job is as manager of General Finance, a non-bank lender that counts the Business Bakery's Grant Baker and Stephen Sinclair among its shareholders and is going public via a backdoor listing.

"We listed on the NZAX as it was an appropriate platform for the operations of CGL but now that NZX is moving to a single equity market and doing away with the NZAX, it’s one set of rules and costs for all," chair John Chow said in a statement. "It doesn’t make sense for CGL to remain listed."

The NZX is only in the second phase of its listing rules review and final decisions haven't been made. Publicly the NZX has said the aim of the review is to reduce compliance costs and red tape. In April, NZX put out for feedback proposals to lift the minimum market capitalisation to $15 million from the current $5 million level, while lowering the free float to 20 percent from 25 percent and reducing the required number of investors to 300 from 500. Chow Group's most recent market value is $9.9 million.

The NZAX has struggled in terms of driving demand and excitement into early stage or fledgling companies, with low liquidity and little analysis from brokerages. It had 16 issuers, including Chow Group, in April. The broader bourse is weathering an IPO drought. While total capital raised via the NZX this year is $1.5 billion, less than 1 percent of that has been new equity capital.

Chow's shares last traded at 60 cents, valuing the company at about $9.9 million, the same price the Chows paid to lift their holding to 90.09 percent. The shares have fallen almost 8 percent in the past 12 months,

It was an off-market trade with shareholders Qijun Zhu, Yuen Kwan Chow, Lai Kwan Chow, So Chow, Lim Chee Mei Jasmine, and Stefan Thieu, according to the substantial holding notices.

Chow Group's statement said its investment team "is currently targeting both local and international private equity and is well on its way to meet our $2 billion target by 2023." The Chows run a property empire worth more than $200 million.

Their combined holding has ensured there's little liquidity in Chow Group stock on the NZX. In 2016 the brothers reduced their personal holdings to a combined 88.4 percent from 95 percent after triggering a Takeovers Code rule. Chow Group posted a profit of $285,001 in its first half ended Sept. 30, from $114,029 a year earlier as revenue rose 9 percent to $1.08 million.

Chow Group joined the NZAX in 2016 through a reverse listing of shell company RIS Group as a means to tap investors willing to fund aspirations to expand their empire, saying at the time they had "grand plans for further expansion into the accommodation and hotel markets in New Zealand".

(BusinessDesk)

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