Sunac shares plunge on builder’s second fund raising plan since July, raising dilution concerns
The company says the money will be used to support ‘healthier development’
Shares of Sunac China Holdings slumped by more than 10 per cent on Friday after one of China’s most highly leveraged developers announced its second stock placement plan since July, raising shareholders’ concern that their interests will be diluted.
The developer, controlled by Sun Hongbin, said it would raise HK$7.82 billion (US$1 billion) through a sale of 251.5 million shares at HK$31.10 each, at a discount of close to 12 per cent to Thursday’s closing stock price, according to a filing to the Hong Kong stock exchange.
The announcement sent Sunac’s shares down 10.6 per cent to close at HK$31.55, the biggest intraday decline since July 18.
The purpose of the fundraising was to “further enlarge the company’s shareholders’ equity base, optimise the capital structure and support a healthier and sustainable development of the company,” Sunac said. “The company intends to apply the proceeds for the general working capital,” it said.
Sunac’s last shares placement was to raise HK$4.2 billion to buy 13 tourism projects from Chinese property developer Dalian Wanda. The Wanda deal was the second-largest ever in the country’s real estate market. It also brought Sunac’s spending spree to 110 billion yuan (US$16.6 billion) this year, including a 15 billion yuan capital injection into cash-strapped technology giant LeEco Group for stakes in three companies.
Last month, Sunac provided US$270 million in loans to troubled internet giant LeEco’s video streaming and television units.
The share placement suggested that Sunac gearing could be very high as its aggressive expansion, said
Raymond Cheng, an analyst at CIMB Securities.
“It needs to expand its equity to bring down the gearing,” he wrote in a research note on Friday.
Sunac said it has 15.76 billion yuan debt due for expiration by 31 December, according to its August interim report.
Cheng believed Sunac took the advantage of the stock rally to raise fund as Sunac shares have risen 450 per cent in the past 12 months.
Immediately after the completion of the share placement, Sunac International Investment Holdings, a wholly owned subsidiary of Sun, will reduce its stake to 47.8 per cent, from 50.7 per cent.
After deducting related fees, the net proceeds to be raised from the share placement will be HK$7.77 billion, said Sunac.