Henderson places $3b in shares
But developer appears to have little need to raise fresh capital
Hong Kong's third-largest property developer yesterday completed a near $3 billion stock placement in an opportunistic cash call that could signal a peak for booming property stocks and harks back to a less sophisticated era of corporate finance.
Henderson Land's $2.98 billion stock placement - its first for six years - surprised investors as the firm has little apparent need to raise fresh capital but comes after a more than 50 per cent rise in its share price this year.
Other property developers are expected to follow suit, with highly indebted players such as New World Development and Great Eagle cited as likely candidates in light of firming flat prices and a belief that Hong Kong's deflationary downturn has bottomed out.
The Lee Shau-kee-controlled firm would use proceeds to convert industrial sites into hotels, pay a potential $1 billion land premium and fund general capital expenditures, it said.
Under the HSBC-arranged placement, Mr Lee sold 92.44 million existing shares at $32.45 to institutional investors. He will then subscribe to the same number of new shares from the firm at the same price.
Investors generally reacted negatively to the news as Henderson Land's low 17 per cent gearing level suggests it is comfortably capitalised and does not need fresh equity. The move contrasts with the reported $10 billion retail bond offering from rival Cheung Kong (Holdings) which should increase investor returns rather than dilute earnings as happens with fresh share sales.
JP Morgan analyst Douglas Sun said the placement was negative for the property sector. 'The only implication we can think of is that the company thinks its share price is excessive,' he said.
However, Henderson reportedly comfortably completed the sale amid strong capital inflows to Hong Kong property stocks.
'Many blue chip companies are looking to cash in from the stock market,' ING Asia head of research Kingston Lee said. 'It may be a sign that the property sector has peaked out.'
Other commentators were more conciliatory, with ABN Amro fund manager Karl Lung saying: 'It makes sense to issue more shares at a premium [to net asset value] as long as it is going to be invested in land.'
Colin Lam Ko-yin, vice-chairman of Henderson Land Development, defended the capital raising: 'We chose share placement rather than other options such as bonds as it's a better way. We do not need to repay the debt and we can invest happily ... I do not think that the market will interpret it as negative news. The news is neutral.'
The placement will increase trading liquidity in the stock as Mr Lee's holdings will drop to 61.9 per cent from 65.2 per cent.
However, Kim Eng research head Stephen Brown slammed the transaction as 'ludicrous corporate finance'. Henderson was 'unnecessarily' increasing its cost of capital by issuing fresh shares. 'It shows they have a 1970s approach to balance sheet management,' he said.
Earlier this year, most Hong Kong property stocks were trading at substantial discounts to their underlying asset value, effectively stopping firms from raising fresh capital and prompting a rush of privatisation attempts by major shareholders.
Henderson's placement was conducted at a 7.02 per cent discount to the stock's closing price of $34.90 yesterday but a 5.2 per cent premium to the firm's net asset value.
