
Guangzhou R&F co-chair Li Sze-lim has some debts to pay
Top 20 mainland Chinese developer R&F Properties has asked shareholders to approve a HK$10.7 billion ($1.4 billion) sale of Hong Kong-listed shares, in its first equity fundraising effort since 2006.
The planned issue of H-shares comes two months after the indebted Guangzhou-based developer had a RMB 6 billion corporate bond plan officially terminated by the Shanghai Exchange during the Chinese government’s ongoing campaign against excessive debt.
In a filing to the Hong Kong Stock Exchange on Monday, R&F said it is planning a shareholder meeting to approve the sale of up 805.6 million new H shares, or 25 percent and 20 percent respectively of its existing and enlarged share base in a deal that could raise up to as much as HK$10.7 billion, based on Friday’s closing price for the stock.
Biggest Follow-On Share Sale Ever
In its statement, R&F appeared to downplay the significance of the equity sale.
“The company has not issued any form of equity since 2006,” it noted. “The current relative small H share public float or highly geared capital structure cannot attract new strategic and long-term investors. The new H shares issue will resolve this issue.”
Should R&F raise the full amount sought, it will be the largest follow-on Hong Kong share sale by a Chinese developer ever.
On completion, the new issue would bring the total number of the company’s shares to 4.03 billion, with H shares accounting for 45.21 percent and domestic shares 54.79 percent. The company would use the proceeds to repay debts, supplement its working capital and invest in projects, it said.
The new H share issue will provide the company with long-term capital and significantly recapitalize its capital structure with low-cost financing, the developer reasoned.
Debt-Driven Acquisitions Bring Equity Sale
R&F’s 2018 interim report showed that the company’s operating cash flow in the first half was RMB -8.38 billion. Besides the negative cash flow, the cash-squeezed builder also saw its net debt increase to RMB 123.28 billion at the end of June from RMB 110.03 billion at 31 December 2017. The Guangzhou-based firm’s net debt to total equity ratio increased to 187.5 percent at 30 June 2018 from 169.6 percent at 31 December 2017.

Guangzhou R&F racked up debts buying Wanda’s One Nine Elms and other pricey projects
Since that time the company co-helmed by Li Sze-lim and Li Zhang has continued to make acquisitions.
In January of this year, R&F bought the still uncompleted One Nine Elms project in London from Dalian Wanda Group for £59 million (then $81.5 million). And the developer followed up three months later by purchasing a 670,000-square-metre residential and commercial project in the Hainan provincial capital of Haikou from HNA for approximately RMB 5.7 billion in April.
Since the time of those deal, China’s property developers have been caught in a funding crunch facing the nation’s private sector due to a two-year long clampdown on shadow financing, as well as a slowing sales market.
Top three mainland developer Vanke also handed in its proposal for issuing of overseas new shares to the China Securities Regulatory Commission on October 29, as revealed on the regulatory body’s website.
Although authorities have rolled out measures to ease funding for non-state firms, the existing property policies to control home prices and prevent speculative investment will not be changed or loosened, the official Xinhua News Agency said in a commentary last week.
Debt Markets Become Pricier for Mainland Developers
Borrowing costs in dollars for China’s high-yield issuers, most of which are property developers, almost doubled this year to 11.2 percent, the highest in about four years, Bloomberg reported, citing ICE BAML indices.
China’s largest developer by sales, China Evergrande Group, sold three tranches of notes totalling $1.8 billion last week as tougher regulations made it more difficult to raise funds through other avenues. The 13.75 percent coupon on the five-year bond was the highest interest the developer has ever paid on a dollar debenture, reported Bloomberg.
Other Chinese property companies have been seeking stock listings in Hong Kong to escape the funding squeeze back on the mainland. Electronics maker turned property developer Midea Real Estate Holdings and Hangzhou-based DaFa properties launched their initial public offerings on Hong Kong Stock Exchange in September. While Midea had earmarked its proceeds for land acquisition, DaFa said it will devote some of its funds to repay the majority of an RMB 530 million two-year loan which matures in September 2019 and was priced at a fixed rate of 8.5 percent.
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