Country Garden founding family agree to buy new shares

Founders and four shareholders are keen to maintain their 75pc stake

PUBLISHED : Saturday, 06 September, 2014, 4:55am
UPDATED : Saturday, 06 September, 2014, 4:55am

Mainland developer Country Garden Holdings' founding family and four connected shareholders have agreed to buy shares in a rights issue to maintain their combined 75 per cent stake while the remaining 25 per cent will be sold either to minority investors or its two underwriters, chief financial officer Wu Jianbin said.

"I have introduced [the rights issue] to them and they all agreed to buy," Wu told the South China Morning Post yesterday referring to the connected shareholders.

Country Garden is issuing 1.27 billion new shares, accounting for 6.25 per cent of its enlarged capital base, to its existing shareholders at a price of HK$2.50 each, 31 per cent lower than last Wednesday's close of HK$3.62.

The discounts were decided after comparing a list of 16 successful rights issues since October 2011 in Hong Kong, Wu said.

The firm's shares have lost 6 per cent since the August 27 announcement to close at HK$3.40 yesterday.

Billionaire Yang Huiyan controls about 60 per cent of Country Garden, founded by her father in Foshan, Guangdong province. Goldman Sachs and JP Morgan are the underwriters of the rights issue.

If everything goes smoothly, Country Garden, one of the mainland's top 10 developers, will get proceeds of about HK$3.2 billion on October 12.

It was the first Hong Kong-listed mainland developer to offer a rights issue this year and was followed by rival Yuexiu Property earlier this week.

Analysts expect more mainland developers to come to the stock market for fundraising as a still-unfolding property market downturn is hitting their cash flows while their debt ratios have reached worrying levels.

Wu said Country Garden is not suffering a cash shortage and the issue is part of efforts to cut the company's financing costs.

He joined in April, coming from China Overseas Land & Investment, a Hong Kong-listed state-owned mainland developer that enjoys the industry's lowest funding cost of 4 per cent.

He aims to cut Country Garden's funding costs to 4 to 5 per cent from above 8 per cent now, which will save the developer billions of yuan in interest payments.

The rights issue offers the quickest way to lower Country Garden's net gearing ratio, to 59 per cent from 67 per cent now.