Update | Chinese developer Country Garden launches HK$3.18b rights issue

Shares of Country Garden Holdings fell sharply yesterday after it became the first Hong Kong-listed mainland developer this year to launch a HK$3.18 billion rights issue amid an industry downturn.

Investors are worried about property companies' soaring debts and slowing sales, with no signs of a quick recovery as credit remains tight.

Country Garden, one of the country's top 10 homebuilders, said on Wednesday it would issue one new share for every 15 existing shares at HK$2.50 each, a 31 per cent discount to the stock's close of HK$3.62.

"The rights issue will be negative due to the large discount," said Edison Bian, the head of property research at UOB Kay Hian. "We expect to see more right issues or share placements within the property space, as developers are being urged to keep down net gearing ratios while a pickup in sales is being delayed."

Bian named China Resources Land, Sunac China Holdings and KWG Property Holding as likely candidates.

Country Garden shares fell 4.97 per cent to close at HK$3.44 yesterday, the worst finish since July 22. The stock slid 7.2 per cent to a session low of HK$3.36, the steepest fall since March 19. It is one of the worst performers this year with a loss of 16.7 per cent.

A banker working on Country Garden's rights issue said Shui On Land's US$470 million rights offering in May last year got a discount of 38 per cent in comparison.