Xingsheng established a joint venture company to sell Hong Kong hotel properties for HKD 410 million.

Hengsheng Holdings (00896.HK) announced an unexpected transaction yesterday. It has signed a protocol on September 9 with its joint venture partner, each holding 50% of the shares, to sell its target company Super Plus Limited for a cash consideration of HKD 410 million. This company owns the property located at 138 Connaught Road West, currently operating as “The Connaught” hotel.

What confuses me is that the group expects to record a loss of about 177 million HKD due to this transaction. This makes me question why the company would sell this asset knowing it would incur a loss? Isn't the hotel industry in Hong Kong recovering?

The timing of this transaction is quite intriguing. Just as Trump threatened to impose new tariffs on China, causing market turmoil, Xing Sheng Creation chose to sell hotel assets at this moment. After recently hitting a historical high, gold prices plummeted by 2%, and Bitcoin also fell from the $105,000 mark, leading to about 300,000 investors facing liquidation. In such a market environment, both the pricing and liquidity of real estate assets face challenges.

From my personal perspective, this may be the company's strategic withdrawal before anticipating further decline in the Hong Kong commercial real estate market. After all, the Hong Kong economy is recovering slowly, and while the tourism industry is showing signs of recovery, it has not yet returned to pre-pandemic levels. Hangseng Creation may be focusing its resources on other more promising business areas.

It is worth noting that the USD/HKD exchange rate recently broke 7.83, reaching a new high in over a year, which may have affected the company's confidence in holding HKD-denominated assets. In the context of increasing global economic uncertainty, holding cash may be wiser than holding physical assets that could depreciate.

I believe investors should closely monitor the subsequent funding use plan of Xing Sheng Chuang Jian, as this will reveal the company's true strategic direction. Such a large-scale asset disposal is inevitably part of a larger strategic layout, rather than mere asset optimization.