China’s Biggest Listed Developer Raises $995 Million in Share Sale

(Bloomberg) -- China Vanke Co. sold HK$7.8 billion ($995 million) of shares to pay down overseas debt, highlighting the potential for a wave of equity raising by Chinese developers.

The sale at HK$29.68 per share represented a 5 percent discount to Wednesday’s closing price, the company said Thursday. The stock surged as much as 7.5 percent in Hong Kong before closing up 1 percent at HK$31.55.

Guangzhou R&F Properties Co. and Beijing Capital Land Ltd. may be among the next to sell shares after advancing plans in recent months, according to Bloomberg Intelligence analyst Kristy Hung. For Vanke, China’s biggest listed property developer, the move highlights the strength of its balance sheet and boosts the liquidity of its H-shares, a goal the company flagged last year.

“This is potentially another avenue for Chinese developers to shore up their balance sheets, as looming debt maturity and slowing home sales weigh on their liquidity,” Hung said. It may be “a relief for developers with high leverage like R&F.”

Vanke has a stronger balance sheet and lower leverage than peers such as China Evergrande Group. The share sale will cut Vanke’s net debt to equity by 4 percentage points to 27 percent, the lowest among China developers tracked by Bloomberg Intelligence. The average stands at 80 percent.

Falling Costs

Debt costs have come down for Chinese builders in the dollar bond market this year, though they’re still much higher than the all-time lows reached in 2017, according to an ICE BofAML index.

Offshore bond yields are still relatively high, said Gregory Suen, an investment director for fixed income at HSBC Global Asset Management Ltd. in Hong Kong. “Probably to some property companies, they may feel it’s expensive funding,” he said. “That’s why if they can identify other funding sources, maybe equity, onshore banks or onshore bond markets, it’s a natural and reasonable thing for them to do to save some costs.”

China Vanke’s Hong Kong subsidiary has nine offshore bonds outstanding totaling $5.5 billion, and a five-year overseas syndicated loan of HK$5.63 billion due in 2022, according to data compiled by Bloomberg.

The company last tapped the international bond market with a $600 million issue at a coupon of 4.2 percent in February. Its overseas bonds pay rates ranging from 2.5 percent to 5.35 percent, the data show.

For more from Bloomberg Intelligence:

“R&F’s approval in a December extraordinary general meeting to boost its H-shares by 79 percent, and Beijing Capital Land’s board approval this month for a rights issue” highlight the potential for more developer share sales.
-- Kristy Hung, Asian real estate analyst
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