Country Garden Seeking $616M from Second Share Sale in One Month

Country Garden, China’s biggest builder by sales, is planning its second share sale in one month as it seeks to raise as much as HK$4.8 billion ($616.9 million) to help refinance its offshore debt.

With its latest offering, Country Garden is planning to sell 1.78 billion shares at HK$2.70 per share, which represents a nearly 15 percent discount from the stock’s closing price a day earlier, according to the filing on 7 December.

Country Garden’s Wednesday announcement on the share placement came after the developer on 22 November announced that it had placed 1.46 billion shares at HK$2.68 per share, which gave it HK$3.87 billion ($493.9 million) in capital to fill a hole created by cratering sales this year.

The Guangzhou-based builder is part of a surge of mainland developers rushing to sell equity as Beijing authorities in recent weeks unleashed a barrage of measures aimed at de-stressing the property market, including encouraging state-run banks to lend more to the sector and providing government guarantees for developer bond issues.

Raising Capital as Sales Slow

“The directors are of the view that the placing will strengthen the financial position and liquidity of the group and provide funding to the group for refinancing existing offshore indebtedness and general working capital,” the developer said in a filing to the Hong Kong Stock Exchange on Wednesday.

The net proceeds from Country Garden’s placement, after deducting placement fees and other expenses are estimated to be no less than HK$4.74 billion, which is equivalent to at least HK$2.66 per share, according to the developer’s announcement. The placement shares will represent 6.44 percent of the company’s enlarged issued share capital, and will be allocated to no less than six investors, with UBS advising on the share placement.

News of China’s policy changes in recent weeks had buoyed developer stocks, with Country Garden’s shares rising from HK$1.05 on 1 November to HK$3.17 on 5 December, before the latest placement was announced.

“With rebounded equity prices, share issuance is a new magic trick to get liquidity from the market,” said Gary Ng, economist for Asia Pacific at Natixis. “It is likely that Country Garden can get cash from investors at a discount level again, but it is based on the shaky assumption that the real estate market will improve,” he said.

“Cash from equity only forms a small part of most developers’ cash flows,” Ng added. “It is a lifeline, but demand from home sales is still the decisive factor. It means the tolerance level from investors will fade unless there is a fundamental improvement in profits and credit risks soon. Country Garden will try to get liquidity at all costs beyond equities, including borrowing from banks and issuing bonds as well as REITs.”

Last month, Country Garden’s contracted sales attributable to shareholders of the company amounted to approximately RMB 26.01 billion ($3.72 billion), which was down 37 percent from RMB 41.35 billion during the same month last year.

Over the first half of 2022, Country Garden saw contracted sales attributable to company shareholders fall nearly 39 percent compared to the same period last year to total just RMB 185.1 billion, according to the developer’s interim report for the six months ended 30 June.

Mainland Funding

In a move to end the ongoing financial crisis in the mainland’s property sector, the China Securities Regulatory Commission last month announced a barrage of policy measures which included ending a ban on domestic equity fundraising, as well as allowing resumption of mergers and acquisitions to support financing for listed real estate companies.

Among the developers that have rushed to raise cash in the wake of this policy shift are Shanghai Shimao, which late last month disclosed plans to sell shares in a private placement.

As for Country Garden, the developer’s stock on Wednesday fell about 15 percent as investors digest news of the share sale. In the past year the company’s shares have lost more than 63 percent of their value.

In November, S&P Global downgraded Country Garden’s long-term issuer credit rating to B+ from BB, before the developer requested that the credit rating agency withdraw its ratings later that month.

“(Country Garden’s) funding channels in both onshore and offshore bond markets have been closed off amid fading market confidence in private Chinese developers,” S&P Global said in its November report. “In our view, it will need to rely heavily on internal resources to settle its upcoming bond maturities and bank syndicated loans. This could undermine Country Garden’s existing cash buffer,” the credit rating agency said.