Mainland developers boost fundraising in Hong Kong

Mainland property firms taking advantage of low interest rates in Hong Kong to raise funds in case coming winter is blighted by poor sales

PUBLISHED : Tuesday, 16 September, 2014, 4:29pm
UPDATED : Wednesday, 17 September, 2014, 5:33am

Mainland developers have stepped up their fundraising in Hong Kong to safeguard against a winter chill in case sales disappoint during the crucial autumn buying season.

They also see a window of opportunity in the loose monetary policies of leading developed countries, including the United States, to raise funds at a reasonable cost to finance expansion over the next decade while end-user demand for housing still holds up on the mainland.

In the past three weeks, five Hong Kong-listed mainland developers have announced plans to raise more than HK$20 billion from bonds and rights issues.

"More will come to the market later," said Chen Xiaotian, chief researcher at property consultancy E&H Corp in Shanghai.

Andy Chang, a property analyst at Fitch Ratings in Hong Kong, said: "The appetite for offshore debt remains strong as investors are more familiar with developers than other sectors and they still hold quite a lot of cash on hand."

Autumn is traditionally a peak period for mainland developers, but sales this month remain weak. Analysts expect developers will offer deeper discounts to sell down inventories in the next few weeks. "But if homebuyers won't come back, [the developers'] cash flows will be strained," Chen said.

Meanwhile, the chill in property sales will filter through to the land market, forcing local governments to lower expectations for auction prices. "When that happens, cash-rich developers will then have the chance to buy cheap land to speed up their expansion," Chen added.

Developer Wuzhou International Holdings announced on Monday a strategic cooperation framework agreement with Ping An Real Estate, which will invest 1.5 billion yuan (HK$1.8 billion) over the next five years in its logistics projects.

Ping An Real Estate, the property investment arm of the mainland's No2 insurer Ping An Insurance (Group), will also look into deploying insurance capital on investments in Wuzhou's stabilised logistics properties.

In addition, Wuzhou will sell US$60 million of convertible notes to Ping An Real Estate and a further US$40 million in convertible notes to Asian alternative investment fund manager PAG.

The biggest fundraiser of recent weeks is Cofco Land, a state-owned developer of commercial properties. It announced on Friday the purchase of assets from parent Cofco Group in a HK$12.5 billion deal that includes six Joy City-branded shopping malls that target the mainland's rising middle-class families.

"Subject to market conditions, the company plans to conduct a series of external fundraising and financing arrangements, including the placings, debt financings and/or other equity financings, for the settlement of the consideration," Cofco Land said.

Country Garden and Yuexiu Property planned to raise HK$3.2 billion and HK$3.8 billion, respectively, in rights issues.

Powerlong Real Estate raised 1.5 billion yuan in senior notes due 2017 at a cost of 10.75 per cent per annum.

Although Powerlong's notes were oversubscribed, Chang said that some developers could fail in their bond issuance plans as investors would watch closely whether sales performance matched the leverage.

Property sales fell in August despite a low base a year earlier and an easing in home purchase restrictions in almost 40 cities.

"If the relaxation fails to gain sufficient traction in the coming months, the impact will only become more limited afterwards since buyers will probably choose to wait for further prices cuts," said Societe Generale chief China economist Yao Wei in a note to clients.