Evergrande debt to remain high after IPO
After cutting its offering size by 40 per cent and lowering the price, Guangzhou-based Evergrande Real Estate Group will only be able to pay off a fraction of its 9.69 billion yuan (HK$11 billion) in net debt after the listing.
Originally aiming to raise HK$16.5 billion, Evergrande had to postpone its listing on the Hong Kong stock exchange in March last year.
With an indicative price range of HK$3 to HK$4, the developer now hopes to raise up to HK$6.46 billion, of which 31 per cent will be used to repay a quarter of a US$500 million loan from Credit Suisse in 2007.
The rest of the money raised will mostly go to paying outstanding land premiums and financing projects such as an island site at the Yangtze's mouth in Qidong, Jiangsu province.
The company has been banking on the government's Shanghai-Chongming-Jiangsu connection project, which includes a plan to build an expressway to link Chongming Island with Qidong.
Evergrande will start construction on the Qidong site by the end of this year, and the bridge linking Shanghai and Chongming will be completed in 2012, according to chairman and executive director Hui Ka-yan.
Analysts are cautious about the developer, which will remain highly geared after its flotation.
The firm received help from two cornerstone investors - Joseph Lau Luen-hung, the chairman of Chinese Estates Holdings, and Cheng Yu-tung, the chairman of New World Development.
Lau and Cheng bought a total of US$100 million worth of shares and will not sell their holdings for six months after the listing.
Evergrande is due to list on the Hong Kong market on November 5 and has been valued at about 6.5 times forecast earnings - less than three other developers - Yuzhou Properties, Excellence Real Estate Group and Mingfa Group (International) - that will also be floating shares in the same week.
'I am heartbroken by this level of pricing,' said Hui. 'I know Evergrande is worth more than that.'
Evergrande has the largest land reserves on the mainland, at 51.2 million square metres, acquired at a relatively low cost across 24 cities.
Hui said the delay in listing had made it 'extremely difficult for the company to move forward'.
'It was really hard last year. It has never been this hard in the history of the company,' said Hui.
'Apart from bringing in investors, there were few other options. We could have sold some of our land reserves and invited other developers to work on our 48 projects, but we didn't want to do any of that.'