Tycoons in IPO boost for developer
Its land bank includes a Shanghai estuary site reachable only by sea or air and a neglected slum in Guangzhou. But the controversial initial public offering planned by mainland developer Evergrande Real Estate Group could limp across the finish line, thanks to some generous Hong Kong tycoons.
New World Development chairman Cheng Yu-tung would buy US$150 million to US$200 million of shares in the US$700 million to US$900 million offer, Evergrande representatives told fund managers on Wednesday.
Chinese Estates Holdings chairman Joseph Lau Luen-hung might also be a cornerstone investor, although he had not decided how much stock he would buy, a spokesman for Lau said.
This would be the second time Cheng, Hong Kong's fourth-richest man according to a Forbes survey published last year, has stepped in as Evergrande's white knight.
In March last year, Evergrande tried to raise US$2 billion in a flotation but cancelled the deal after lack of interest. Cheng then partnered Merrill Lynch to give the debt-laden developer a US$502 million cash injection.
Cheng could not be reached for comment, but two sources close to Evergrande confirmed he would participate in the share sale.
Evergrande's bankers - BOC International Holdings, Goldman Sachs and Merrill Lynch - will price the shares on Sunday. The deal will open to subscriptions on Monday.
'It could be just spin,' one person who was at the investor meeting warned, saying the number of shares Cheng and Lau would subscribe to had not been finalised yet.
Companies can try to whip up interest in their share sales by suggesting tycoons are cornerstone investors. But Cheng also needs the share offer to succeed to make any return on the price he paid for his pre-flotation stake. So-called pre-flotation financing is structured to give the private equity investors huge rewards in the eventual stock market listings.
Evergrande's fund-raising goal remained uncertain, investors said, because the developer had a bumpy history and the new issues market was choked up with mainland real estate firms keen to raise fast cash while the going was good.
In 2006, Evergrande gobbled up loans from investment banks and private equity funds and went on a massive land grab designed to bulk up its business in time for a large share issue. It borrowed US$400 million from an investor group including Singapore sovereign wealth fund Temasek Holdings and a further US$400 million from Swiss bank Credit Suisse.
Although Evergrande's six million square metre Qidong Splendor site on the north bank of Shanghai's Changjiang river estuary is inaccessible, the developer says the Shanghai government will finish building a bridge to the land in 2012.
Evergrande also owns a 110,000 sqmetre project in the Guangzhou slum district of Yuancun. It spent 13,000 yuan (HK$14,754) per square metre to acquire that land in January last year.
An investigation by the South China Morning Post on August 31 revealed the site was idle. An Evergrande spokesman could not provide an update on that situation.
However, the developer is building 40 housing projects in 20 mainland cities, according to pre-listing analyst research.
'Investors are fed up with China property stocks,' a hedge fund manager said.
Another developer, Excellence Real Estate, wants to raise HK$7.8 billion and is expected to set its share price range today.
Shanghai developer Glorious Property Holdings floated on October 3. But its shares, which opened at HK$3.59 on October 3, languished at HK$3.25 at the close yesterday.
The spokesman said Evergrande sold 12.3 billion yuan worth of property in the three months to September.
