Hon Kwok bond lures funds

PUBLISHED : Wednesday, 21 June, 2006, 12:00am
UPDATED : Wednesday, 21 June, 2006, 12:00am

International investors undertake $250m of debt to increase mainland exposure

Five international funds have agreed to subscribe to a convertible bond issue of more than $250 million in Hon Kwok Land Investment, underscoring their desire to increase exposure to the mainland property market.

Among them, Morgan Stanley has undertaken to subscribe to more than 50 per cent of the bond issue while LIM Advisors, of which veteran property investor Peter Churchouse is a shareholder, has committed more than $30 million, according to sources familiar with the deal.

Hon Kwok Land, whose shares were suspended from trading yesterday, had proposed the five-year convertible bond to raise funds for financing the acquisition of property projects in southern China, the sources said.

The developer, which has shifted its focus to the mainland since 2004, had signed various memorandums of understanding to undertake residential projects in Shenzhen and Guangzhou, a source said.

'The proceeds to be raised by the convertible bond would be used to fund future acquisitions,' another source said.

Foreign funds remain keen on investing in the mainland property market although the central government last month imposed austerity measures to cool the overheated sector.

China could issue more rules governing foreign investment on property as early as this month, according to government officials.

Foreign funds have explored different investment approaches to expanding their mainland presence, from trading buildings en bloc to buying into property developers.

Subscribing for the convertible bonds would allow the five foreign funds to invest in Hon Kwok Land.

Last year, Hon Kwok Land brought in Gateway China Fund as a strategic investor in a residential site in Guangzhou's Liwan district.

In December, it sold a 40 per cent stake in a residential site in Dali Town, Foshan, to Morgan Stanley for $128.76million. Early this year, Morgan Stanley further raised its stake to 50 per cent.

The developer has also attracted the attention of German fund DJE Investment, which has built up a 6 per cent holding in the firm over the past two years.

Hon Kwok Land is now involved in seven developments in Shenzhen, Guangzhou and Foshan with a potential gross floor area of more than one million square metres.

One of the company's major projects is Regency Hon Kwok, a residential-commercial development in Lung Don Cian in Guangzhou. The first phase of the development, which comprises 400 units, is scheduled for presale this financial year.

Net profit for Hon Kwok Land jumped to $91.3 million for the six months to September last year from $2.66 million in the same period a year earlier.

Shares in the company were suspended ahead of market opening yesterday. They closed at $3.125 on Monday, gaining 52 per cent over the past 12 months.