Chinese developer Agile Property cancels HK$2.8 billion rights issue

Beleaguered mainland developer Agile Property yesterday called off its HK$2.8 billion rights issue, after Standard & Poor's put its long-term credit rating on negative watch for lack of explanation about its share suspension and growing refinancing risk.

"We don't have a clue how long the suspension will last and why. That's the most important issue and the biggest uncertainty," said Bei Fu, a senior property analyst at global ratings agency S&P .

Agile shares have been suspended from trading since October 3 amid market rumours that chairman Chen Zhuolin has gone missing.

"The rating action is not about a gradual deteriorating of its credit profile; rather it relates to an event risk associated with the share suspension … We believe Agile's share suspension could continue next week."

S&P put Agile's BB long-term corporate credit rating on negative watch on Thursday.

Other mainland developers such as Country Garden and Yuexiu Property, however, are on track with their rights issues, with analysts expecting more developers from across the border to come to the market for funds to fix their balance sheets. Country Garden last night said its rights issue had been 8.8 times oversubscribed.

John White, a managing director of global real estate fund manager Heitman, called these rights issues a "painful dilution" of earnings and dividends, adding he has long been worried about the aggressive debt-driven expansion of mainland developers.

"We have been concerned about the credit strength of these companies," he said. "Their actual cash flow has been negative for a long time."

Many developers are struggling to sell their inventories as property sales remain sluggish in a slowing economy. Sales fell 8.9 per cent in the first eight months to 4.2 trillion yuan (HK$5.3 trillion).

The Chinese Academy of Social Sciences yesterday cut its forecast for the nation's economic growth to 7.3 per cent this year, compared with its previous projection of 7.4 per cent.

The think tank said government efforts to increase infrastructure expenditure would be insufficient to counter the slowing property investment.

Agile's contracted sales rose 20.7 per cent in the first eight months from a year earlier to 26.5 billion yuan but it also cut average selling prices by 20.8 per cent, making it hard to hit a full-year sales target of 48 billion yuan.

Agile's scrapping of the rights issue will force it to seek other options to refinance its US$500 million bridge loan that matures in December - possibly a loan extension, a new loan, or even using its own cash, which will further weaken its liquidity, Fu said.

As of the end of June, Agile had about 15 billion yuan of short-term debt, and unrestricted cash, or instant reserves, of 7.6 billion yuan. The company's US-dollar-denominated debts of US$2 billion will also mature in the next four years, according to S&P.

The Guangzhou-based developer yesterday said its underwriters - HSBC, Standard Chartered and BNP Paribas - would continue to monitor "fundraising options at the soonest practicable time" and that the Chen family, which controls 63 per cent of the company, stood ready to put in their own money.

The announcement came three days after Agile denied a mainland website article that the company had links to former security tsar Zhou Yongkang, who is now under investigation as part of Beijing's anti-corruption drive.

Agile shares dropped 40 per cent this year to HK$4.77 before they were suspended.