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SCMP Reporter

LISTED on the Shenzhen stock exchange since January 1991, Shenzhen Vanke is planning a B-share issue later this month.

  Vanke A shares have been available since listing in January 1991 and now the company plans to issue 45 million B shares through Standard Chartered, with applications closing on April 17.

  Vanke is a property developer-trader-equity investor. The B shares are priced at 12.7 times prospective 1993 earnings. The company's A shares trade at about 28 yuan (HK$38), while the B shares are offered at 11 yuan, a discount of only 60 per cent.

  The average discount of the nine listed B shares to A shares in Shenzhen is currently 93 per cent.

  Vanke is the closest thing so far to a national Chinese property company. Its operations are not restricted to the Shenzhen area.

  It has 13 offices across China, including one in Hongkong. The company specialises in property development, which may distinguish it from many other Shenzhen companies which dabble in property as an adjunct to their traditional businesses.

  Vanke has an interest in several properties; of the more important properties three are in Shanghai, three in Tianjin, two in Beihai and one in Qingdao.

  A number of properties are to be acquired by Vanke, the most valuable of which, a 33,810-square-metre site, is in Beihai for commercial-residential usage, 2.5 kilometres south of the town centre.

  The largest project under construction is Xijiao Villas near Shanghai.

  This is a 55,388-sq-metre site on which 88 houses with gardens are being constructed, for completion in July, all of which have been pre-sold.

  An even bigger project, due for completion in three years time, but one in which the company has only a 40 per cent interest is Vanke City, also near Shanghai.

  This is on a 376,466-sq-metre site, intended to be a large scale residential estate with a floor area of 436,800 sq metres, of which 17 per cent has been pre-sold.

  Another residential estate due for completion in March 1996 is Silver Garden in Qingdao.

  In Shenzhen, Vanke has Lucking Mansion under construction due for completion in July 1994. This will be a 29-storey commercial-residential building.

  Vanke's second major area of concentration is equity investments. It already holds stakes in 18 companies at a cost of 62 million yuan. On listing, the profit potential of these companies can be very significant.

  Net profits from all Vanke's operations took a downturn in 1991, from 12.8 million yuan, but picked up smartly in 1992 to 39.1 million yuan - 1993 is expected to see 146.5 million yuan recorded; so this is clearly the year to issue further equity.

  Shenzhen Vanke's prospective price-earnings ratio is not especially cheap in comparison to some recent B-share issues and in a comparison with Shenzhen Properties and Resources Development it looks expensive.

   Standard Chartered Securities' forecast for Shenzhen Properties for 1993 puts the B shares on a prospective price earnings ratio of 11 times. One imagines the argument is that Vanke on 12.7 times is more of a national player and is in areas where property prices have not yet risen so quickly and can, therefore, be priced at a premium to Shenzhen Properties' B shares.

Duncan Mount is a director of The China Fund and managing director of CEF Investment Management Limited which may have an interest in and/or hold positions in securities mentioned above.



Property developer to launch B-share issue