Property giant China Vanke aims to raise US$1 billion in new shares sale as it prepares 'to survive' housing market slump

By Pearl Liu pearl.liu@scmp.com / https://www.scmp.com/business/companies/article/3003667/property-giant-china-vanke-aims-raise-us1-billion-new-shares?utm_medium=partner&utm_campaign=contentexchange&utm_source=EdgeProp | April 1, 2019 6:37 PM SGT
Property giant China Vanke aims to raise HK$7.8 billion (US$1 billion) through a placement of new shares as it prepares to deal with a slowdown in the housing market.
Vanke, mainland China's second-largest developer by sales, said it will place 263 million new shares on the Hong Kong stock exchange at a price of HK$29.68 apiece to raise HK$7.8 billion in capital.
The announcement on Thursday came as the mainland's developers face uncertainty amid a sharp drop in property sales.
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"They will not rake in the big bucks from selling homes this year as they have before," said Toni Ho, an analyst at RHB OSK Securities Hong Kong. "It's the best time [for the shares placement] now as the share prices are doing quite well, to get hold of sufficient money to have on hand, a healthier balance sheet and higher liquidity of its H shares to be in a better position to get funded onshore and offshore when the worst comes to the worst."
H shares is the term given to stocks in mainland Chinese firms traded in Hong Kong.
Vanke has seen its shares surge 19 per cent this year, finishing Thursday at HK$31.55.
The share sale will cut Vanke's net gearing ratio " a measure of the proportion of borrowed funds to equity " to 27 per cent, much lower than the industry average of 70 per cent.
"It is difficult to be among the top [developers], feeling the ethereal cold up there," Yu said in reference to projected home sales growth in 2019.
Vanke did not set any sales target for this year after growth slowed to 14.5 per cent last year from 45.3 per cent in 2017.
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In a special letter to shareholders on Tuesday, the chairman said the bull run of China's property market was over.
"As such, we are expected to face two challenges ... one is to completely leave the comfort zone of the golden age and enter into an era of low fault-tolerance and highly intensified competition. The other is to leave an environment we are accustomed to and enter into a relatively unfamiliar arena," Yu said.
The company unveiled the slogan "to survive" during a conference in Shenzhen in September, amid concerns about "darkening skies over the country's builders".
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New shares to be placed will account for 20 per cent of Vanke's existing H shares and 2.4 per cent of the total issued shares. The company's stock is also traded in Shenzhen.
"The placement will boost liquidity of its H shares and its presence among offshore investors, which can smooth fundraising in overseas market, for example offshore bond issuance if the company decides to do that later," said Leif Chang, a property analyst with Nomura.
Developers in China have got off to a dismal start this year. Evergrande saw its contracted sales fall by 42.5 per cent year-on-year during the first two months of 2019, its worst result in three years. Vanke reported a decline of 11 per cent in sales, and Country Garden said its were down 11.3 per cent.
Markets expect transaction volumes to shrink by 10 per cent for the whole year.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2019 South China Morning Post Publishers Ltd. All rights reserved.
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