Shimao’s unit taps a jittery capital market in a surprise plea for funds, sending nervous investors for the exit

Shimao Services Holdings plans to issue HK$3.11 billion of convertible bonds and sell 115 million new shares to raise a combined HK$4.86 billion

Shares of the company, spun off less than a year ago, tumbled by as much as 13.1 per cent, in their biggest intraday percentage plunge in a month

2-MIN READ2-MIN

Published: 3:00pm, 20 Oct 2021Updated: 9:45pm, 20 Oct 2021

Shimao Services Holdings, the management unit of one of China’s largest property developers, is tapping the capital market for funds, a plan that surprised investors who are already jittery over the financial state of China’s indebted developers, causing its shares to tumble.

Shimao plans to issue HK$3.11 billion of convertible bonds at a conversion price of HK$18.22 per share, and sell 115 million shares at HK$15.18 to raise a combined HK$4.86 billion (US$624 million), according to two filings to the Hong Kong stock exchange on Wednesday.

Shares of Shimao Services, which said it intends to use the net proceeds raised for “potential mergers and acquisitions, business expansion, working capital and general corporate uses,” tumbled by as much as 13 per cent, their biggest intraday percentage plunge in a month. It closed at HK$15, 10.82 per cent lower than a day earlier.

The fundraising plan, chaired by the company founder’s son Jason Hui Sai-tan, comes at a jittery time for China’s real estate industry amid a record spate of defaults, as heavily leveraged borrowers like China Evergrande Group, Guangzhou R&F Properties grapple with raising capital to repay their financial obligations. R&F had to sell three assets to a unit of Country Garden Holdings for 10 billion yuan last month to repay its borrowings.

Jason Hui Sai-tan, chairman of Shimao Services Holdings and the son of the Shimao Group’s founder, during an interview in Hong Kong’s Admiralty on 26 March 2019. Photo: Winson Wong

“We find the timing and valuation of these surprise fundraising [plans] difficult to justify, given the company’s rich cash balance and the recovering market sentiment in the sector,” Jefferies’ analyst Stephen Cheung wrote in a research note. “This, together with its 5.6 billion yuan cash balance in the first half of this year, drives our concerns on the asset quality of the potential acquirees, and whether there are other non-fundamental considerations for this somewhat hurried fundraising amid the recovering sentiment on the sector.”