Chinese developer Country Garden launches HK$3.18b rights issue

Shares of mainland developer fall 5pc on fears over capital-raising exercise amid slowing sales

PUBLISHED : Thursday, 28 August, 2014, 10:08am
UPDATED : Wednesday, 20 June, 2018, 4:53pm

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.

Country Garden planned to use the funds raised to refinance maturing debts and for general working capital, it said in a statement to the Hong Kong stock exchange. About 1.27 billion new shares will be issued.

"Raising capital through a rights offering is probably one of the least favourable options as debt and loan markets should offer economical ways to lower the capital base," said a fund manager with a European fund house who has shares in Country Garden. The rights issue requires no shareholders' approval and new shares will account for 6.25 per cent of Country Garden's enlarged capital.

A record 64 of the 70 mainland cities monitored by the National Bureau of Statistics suffered from falling home prices last month.

Developers, facing pressure to hit full-year targets, will have to speed up launches of new projects and offer deeper discounts for the rest of this year.

Country Garden is aiming for sales of 128 billion yuan (HK$161.4 billion) this year and has locked in 51 per cent in the first seven months.

Before it gets the net proceeds of HK$3.15 billion, Country Garden will have to rely on the extension of a US$400 million bridge loan from underwriters Goldman Sachs and JP Morgan to repay a US$3.75 billion senior note due on September 14, the developer said.

Senior executives said the rights issue would cut Country Garden's net gearing ratio to 59 per cent from 67 per cent at the end of June.

BNP Paribas property analysts Lee Wee Liat and Ronney Cheung said in a note if a 3.1 billion yuan perpetual bond was counted as debt and not equity, Country Garden's net gearing ratio would rise to 99 per cent.