Yuexiu Property seeks HK$3.84b in rights issue
Mainland developer joins peer Country Garden in seeking equity financing to improve cash position amid prolonged sector downturn
Yuexiu Property became the second Hong Kong-listed mainland developer in a week to tap the equity market in an attempt to diversify its fundraising in the middle of a prolonged industry downturn.
It aims to raise HK$3.84 billion via a rights issue. Yuexiu's new shares are priced at HK$1.25 per share, a 25 per cent discount from its close on Wednesday. Developer Country Garden announced last week a HK$3.18 billion rights issue priced at HK$2.50 per share, a 31 per cent discount to last Wednesday's closing price.
Shares of Yuexiu and Country Garden ended down 1.2 per cent and 1.7 per cent respectively yesterday to HK$1.65 and HK$3.43, while the Hang Seng Index shed 0.1 per cent.
Mainland property shares have been trading at large discounts to their net asset value in recent years, pushing developers to issue a record amount of bonds offshore.
"Equity financing tends to be cheaper than debt financing, but pricing of shares will remain as the key," said Edison Bian, research head of China property at UOB Kay Hian in Hong Kong.
In a filing with the Hong Kong stock exchange on Wednesday night, Yuexiu said it will sell as many as 3.07 billion shares. Net proceeds will improve its net gearing ratio, cash position and availability of working capital to facilitate expansion, it added.
Yuexiu had a net gearing ratio of 62.7 per cent at the end of June, while that for Country Garden was 67 per cent.
Fundraising onshore for developers has been under heavy restrictions since 2009. Reuters reported on Wednesday that mainland developers would be allowed to issue bonds in the country's interbank market, which is regulated by the central bank. However, the channel will be limited only to builders of mass market homes, not luxury developers. Money raised cannot be used to acquire new land.
"It is a positive but not a substantial move," said Andy Chang from Fitch Ratings, adding the key issues were still fundamental - polarisation among cities and uncertain monetary policy.
The relaxation came a few months after the mainland's securities regulator approved several listed developers to issue bonds in the stock exchange to fund their construction of government-backed affordable homes or mass market homes.
Christopher Lee, Asia Pacific managing director of corporate ratings at Standard & Poor's, took the rights issues as part of the developers' efforts to cap their debt ratio.
The global ratings agency expects more negative rating actions for mainland developers in the next 12 months, as well as some defaults for companies at the lower end of its rating spectrum, it said in its latest China property market report.
Last week it revised the outlook for mainland developer Xinyuan Real Estate to negative from stable on declining margins and rising leverage.
The agency forecasts a 5 per cent fall in China's property sales revenues this year from last year, down from its previous projection for a 5 per cent rise.
"Tighter credit conditions and increased risk control on financial institutions' exposure to real estate would also restrict the funding of property developers," S&P said.
