Star Group Asia Limited Announces Major Property Disposal and Leaseback Arrangement

Key Transaction Overview

• Star Group Asia Limited (HKEX: 1560) has announced a major transaction involving the disposal of two significant residential properties located at No. 16 and No. 18 Yiu Wa Street, Causeway Bay, Hong Kong. The deal is valued at HK\$58,000,000.
• The disposal involves the sale of all residential units on 1/F – 4/F of No.16 Yiu Wa Street, 1/F – 5/F & Roof of No.18 Yiu Wa Street, and 5/F & Roof of No.16 Yiu Wa Street, totaling approximately 4,681 sq.ft. These units are currently being used as rental apartments operated by a subsidiary of the Group.
• The purchaser is New Joyful Way International Limited, an Independent Third Party, while the vendors are Wise City Holdings Limited and Numeric City Limited, both indirect wholly-owned subsidiaries of the Company.
• Completion Date is scheduled for 31 March 2026, with a potential postponement to no later than 18 June 2026, subject to satisfaction of all conditions precedent.
• Consideration payment structure:
  • Initial deposit upon signing: HK\$2,900,000
  • Further deposit on or before 2 February 2026: HK\$2,900,000
  • Balance (on completion): HK\$52,200,000

Leaseback Arrangement

• Upon completion of the disposal, the Company (through its wholly-owned subsidiary, Metropolitan Apartment Limited) will immediately lease back the properties for an initial term of 2 years at a monthly rental of HK\$250,000 (exclusive of government rent, rates, and management fees), with a rental deposit of HK\$500,000.
• This arrangement allows the Group to continue operating its apartment rental business at the same location, minimizing operational disruption.
• Under HKFRS 16, the right-of-use assets and lease liabilities of approximately HK\$5,533,198 will be recognized, representing an acquisition of assets by the Group.

Financial Impact and Rationale

• Significant Loss on Disposal: The audited carrying value of the properties as at 31 December 2024 was approximately HK\$114.8 million. Given the disposal consideration of HK\$58 million (less approx. HK\$2 million in disposal expenses and HK\$2.25 million in leaseback costs), the Group expects to record a substantial fair value loss of approximately HK\$54.8 million in 2025 and an additional HK\$6.25 million in 2026.
• Net proceeds from the disposal are estimated at HK\$53.75 million, of which HK\$50 million will be used to repay existing bank loans associated with the properties. The remaining HK\$3.8 million will serve as working capital.
• Reduction in Indebtedness: The transaction will reduce the Group’s total assets by approximately HK\$111 million (removal of the property value offset by net cash inflow) and decrease total liabilities by HK\$50 million.
• The Board believes this transaction will improve liquidity, reduce finance costs, and enhance financial flexibility of the Group, especially in the current high interest rate environment where the Group has been paying bank interest at rates around 7.5% p.a. (2.5% above HIBOR).
• The monthly rental expense under the leaseback arrangement is broadly comparable to the current monthly interest payments on the property loans.

Valuation Considerations

• The latest independent valuation (by Knight Frank Petty Limited as of 5 February 2026) values the properties at HK\$60,000,000, slightly higher than the agreed disposal price but reflects a significant reduction from the 2024 carrying value (HK\$114.8 million).
• The sharp decline in valuation is attributed to:
  • Loss of redevelopment potential after the sale of the ground floor shop in November 2025, which removed the “whole block” premium.
  • Adverse macroeconomic conditions in 2025, including high interest rates, weak market sentiment, and uncertainties from global and US policy shifts.
  • Heightened market concerns over aging buildings following a public incident at Hung Fook Court, leading to lower demand and valuations for older properties (the subject buildings are over 60 years old).

Shareholder and Listing Rules Implications

• The disposal constitutes a major transaction under Chapter 14 of the Listing Rules, as the relevant percentage ratios exceed 25% but are below 75%. It is therefore subject to announcement, circular, and shareholder approval requirements.
• No physical shareholder meeting will be convened as written approval has been obtained from Mr. Chan Man Fai Joe and Star Properties Holdings (BVI) Limited, holding approximately 68.7% of the Company’s shares.
• The leaseback arrangement is classified as a discloseable transaction (relevant ratios exceed 5% but are less than 25%), requiring reporting and announcement but not circular or shareholder approval.
• The Board, including all independent non-executive directors, considers the transaction fair, reasonable, and in the best interests of the Company and its shareholders.

Financial Position and Working Capital

• As at 30 June 2025, the Group’s unaudited consolidated total assets were approximately HK\$2,369 million, with total liabilities of HK\$1,581 million.
• The Group had substantial secured and guaranteed bank borrowings (approximately HK\$1,105.3 million as at 31 December 2025), and the disposal will help reduce overdue debt and mitigate liquidity pressure.
• The Board has outlined further plans to improve liquidity, including asset disposals, refinancing, and cost controls. However, it notes significant uncertainties remain as to whether these measures will achieve the desired liquidity improvement.

Additional Information

• Financials of the properties: Both premises recorded net losses in 2023–2025, mainly due to sharp declines in fair value, with Premises 1 incurring a net loss after tax of HK\$72.9 million (unaudited) in 2025.
• The purchaser, New Joyful Way International Limited, is an independent investment holding company whose ultimate beneficial owners are Ms. Liao Ziui, Mr. Shi Haojun, and Ms. Liao Ziyu.
• The disposal is not expected to result in any change of control or major change in the core business of the Company.

Potential Price-Sensitive Information for Shareholders

• The significant accounting loss arising from the property value write-down and disposal could have a material impact on the Group’s 2025 and 2026 financial results.
• Improvement in liquidity and reduction in interest expenses may be viewed positively by investors, potentially supporting the Company’s financial stability in a challenging market.
• The strategic decision to lease back the properties ensures business continuity for the Group’s apartment rental operations and avoids costs associated with relocation or reinstatement.
• Ongoing uncertainties in refinancing and asset disposal plans mean investors should monitor the Group’s liquidity and strategic execution closely.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Investors are advised to consult their professional advisers and review all public disclosures and circulars from Star Group Asia Limited before making any investment decisions. The information herein is based on the latest available company circulars and may be subject to change without notice.

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