Country Garden, China’s top property developer, plans US$360 million share sale to refinance debt
- The Shenzhen-based company will issue 870 million new shares at HK$3.25 each, a 12.6 per cent discount to its last closing price
- The company’s shares declined as much as 15.9 per cent to HK$3.13 in intraday trading
Country Garden Holdings, China’s largest property developer by sales, said it aims to raise HK$2.83 billion (US$360.2 million) from a share sale to refinance offshore debt and for working capital needs. The shares slumped on the announcement.
The Shenzhen-based company will issue 870 million new shares, or 3.62 per cent of the enlarged share capital, at HK$3.25 each, representing a 12.6 per cent discount to the closing price on Tuesday, it said in an exchange filing on Wednesday. UBS is the placing agent.
The fundraising “can support the company to optimise its debt, capital structure and increase its equity ratio at a time when the industry is facing challenges”, Country Garden said in a separate statement to the Post.
Beijing’s “three red lines” policy, introduced in August 2020 to curb excessive debt in the real estate industry, has shut access to funding for the mainland’s weakest borrowers. Country Garden is currently tagged yellow under the leveraging metrics, the second-most constrained type of borrower.
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The developer had total debts of 318 billion yuan (US$47.3 billion) at the end of last year, versus 326.5 billion yuan a year earlier.
The company’s shares declined as much as 16 per cent to HK$3.12 in intraday trading.
Shares of mainland developers also fell, after surging this week in Hong Kong amid reports about a Beijing-led rescue fund to bail out troubled developers.
“We are not surprised that its share price reacted negatively,” said Raymond Cheng, property analyst at CGS-CIMB Securities, pointing to the big discount offered for the share placement.
“The deal, however, will help to strengthen its balance sheet. We think some of the proceeds are likely for the US dollar bond buy-back, in which Country Garden could save interest expenses,” he added.
Country Garden’s financial health may be on the mend, after it repurchased most its US$683 million bond last month, ahead of its maturity on July 25.
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The buy-back should give investors confidence that Country Garden will not have trouble repaying debt in the next six to 12 months, Cheng said in June.
Not everyone shares the same sentiment. It will not all be smooth sailing for Country Garden because the company’s current deleveraging situation is still quite grim, said Ivan Li, a fund manager at Shanghai-based Loyal Wealth Management.
“Country Garden is issuing new shares to ease the current repayment pressure, but overall repayment pressure is still high and the situation needs to be further observed,” he said.
