China Overseas Holdings is raising US$500 million from selling bonds convertible into shares of its Hong Kong-listed unit China Overseas Land & Investment, according to a term sheet sent by JP Morgan to investors.
'The bonds were significantly oversubscribed,' a source said. 'The company has a strong equity story, the market is full of liquidity and there is appetite for new issues.'
The central government is taking steps to cool the mainland property market, such as raising taxes to curb speculation and restricting lending to developers, but market observers expect developers with the largest land bank and cash on hand will weather any slowdown better than their less well-off peers.
China Overseas Land plans to spend seven billion yuan buying three million square metres of land this year, according to comments from chairman and chief executive Kong Qingping last month.
The company this year bought one site each in Changchun, Suzhou and Hong Kong with a total gross floor area of 1.1 million sqmetres. Mr Kong said the company's land bank of 15 million sqmetres was sufficient for development over the next four to five years.
The seven-year bonds were priced to yield at 3.8 per cent, the tight end of a range that was marketed yesterday as high as 4.3 per cent. Should all the bonds be converted into shares, there will be 245 million new shares.
Investors will be able to change the bonds into shares when the company's share price rises to HK$15.93, or 50 per cent above the stock's close of HK$10.62 on Friday. The marketed range on the conversion price went as low as HK$15.40, or 45 per cent above Friday's close.
Deutsche Bank, China International Capital Corp, Citigroup and JP Morgan arranged the deal.
China Overseas Land shares have doubled in value over the past year, while the Hang Seng Index has risen 24 per cent over the same period. The shares were suspended yesterday.
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China Overseas Land & Investment