Chinese developers have taken advantage of this year’s stock rally to launch more than $1.76 billion in share sales over the last week, providing a few lucky listed companies with powerful boosts to their beleaguered balance sheets.
The share offerings by China Resources Land, Greenland Hong Kong, CIFI Holdings and Yuzhou Properties have put record amounts of new equity in Chinese real estate companies into the market, as developers look for alternatives to debt financing.
The historic wave of stock deals could be just the beginning of equity sales by China’s listed developers, as companies compete to cash in on the stock rally that that has seen prices for the mainland-listed real estate equities climb by an average of 150 percent over the last 12 months.
Big Share Sales a Downer for Property Stocks
The biggest share sale of the month so far was China Resources Land’s $1.3 billion deal which is said to have sold its shares to a group of around six selected buyers at a 5.5 percent to 7 percent discount. While the company’s stock had already risen 28 percent this year, since the announcement its share price has slid more than 8.27 percent.
Robert Fong of Bloomberg
Other developers have offered even steeper price cuts with small-cap player Yuzhou Properties enticing buyers of its offering with a 12.35 percent discount, although the share sale would dilute the company’s existing shares by 10.4 percent. In the last five days Yuzhou’s shares are down 4.1 percent.
Greenland and CIFI’s share offerings have not yet been made official, but both stocks were down yesterday with CIFI sliding 0.80 percent and Greenland Hong Kong down 2.14 percent.
The rash of share offerings is already making investors nervous that more developers could soon follow suit, and these late-comers might have to offer even sweeter deals – wiping out some of the paper gains of speculators riding the stock wave.
“Just about every Chairman and CFO of every developer is eyeing the opportunity to do some kind of equity issue. In each issuance cycle, it pays to be first. Once the deals start coming fast and furious, market appetite can be satiated pretty quickly,” noted Bloomberg Intelligence analyst Robert Fong.
And these fears were reflected in Monday’s stock moves, even among company’s that have not been said to have share deals in the works. Evergrande Real Estate slid by 3 percent yesterday, China Vanke lost 1.8 percent and China Overseas Land & Investment was down by 1.2 percent.
Developers Sell $19 Billion in Equity in 2015
Investors may be right to watch out for upcoming share sales considering Chinese developers’ track record so far in 2015.
A combination of the opening of the Hong Kong-Shanghai Stock Connect, a rally in mainland shares, and a tightening of bond issues has created favorable conditions for share offers that corporate executives have pounced on.
So far in 2015 Chinese developers have sold more than $19.2 billion in new shares more than any full year in history, according to data from Bloomberg, with much of the action happening on the Hong Kong exchange.
The easier regulatory path for Hong Kong-listed companies has allowed developers listed there to get first crack at the markets. “The HK-listed developers that don’t need CSRC approval may have a bit more flexibility in the timing of their placements but their investment appeal will vary,” Fong added.
Despite Hong Kong’s first mover advantage, mainland-listed developers may try to play catch-up as the Shanghai and Shenzhen exchanges now have a line-up of 25 new proposed share offerings worth more than $16.2 billion awaiting regulatory approval.
Could Evergrande Be Next Up?
Evergrande’s Xu Jiayin may need some cash to pay for his new beachside plastic surgery retreats
Asked to predict which developers might be next to issue new shares, one equities analyst pointed to the fundamentals. “Just being listed isn’t enough of an advantage or distinction. Strength of balance sheet, quality of landbank and execution will be increasingly critical in an overall industry climate of slower structural growth,” the market watcher told Mingtiandi.
The simplest indicator to judge by, however, might be how much a company’s share price has risen so far this year, and how eager they may be to bring in more cash while they still can.
Judging by these criteria, despite a slide in its share price in recent days, Evergrande Real Estate is still up by 113 percent since January 1st, and boss Xu Jiayin may need more funding for his burgeoning list of new business plans.
Another likely candidate could be Greentown China Holdings, which is up nearly 37 percent this year. The Hangzhou company just finished a messy divorce from would-be partner Sunac that could leave it in need of a financial reboot.
While in many ways not a mainland developer, billionaire Vincent Lo’s Shui On Land has finally seen some levity in its share price recently with the Hong Kong-listed stock rising 45 percent in the last three months. For Shui On, which has been forced to sell off a number of its prized projects to fortify its balance sheet, selling new equity might look more attractive than parting ways with still more core assets.
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