JPMorgan completed an increased 850 million share placement for China Overseas Land yesterday (Monday) raising HK$1.53 billion ($196 million). The deal was increased from a base offer size of 700 million and priced towards the wide end of the range after a four-hour bookbuild.
The lead is said to have been working on the deal for a few weeks and launched the offering after Asia's close at a price range of HK$1.78 to HK$1.83 per share. Final pricing was settled at 1.80, representing a 10% discount to the stock's closing share price of HK$2. On a five-day average, however, pricing appears much tighter and comes in at a 4.3% discount.
China Overseas has seen its share price rise nearly two fold over the past year and almost 50% in the past three months alone. On the day of pricing, it outperformed the entire property sector to rise 4.3%. Much of the recent rise has been fuelled by speculation that the company will spin-off its construction assets after merging them with those held by its parent China Overseas Holdings. It is currently trading at a roughly 20% discount to NAV.
Observers believe the deal may be fortuitously timed given increasing concerns about the impact of bird flu on regional stock markets. Books, nevertheless, closed three times covered with participation by about 45 accounts. These included a mixture of new and existing holders.
By geography, the deal split 50% Asia, 30% Europe and 20% US.
The deal represents 15.53% of the company's existing share capital and a large 41 days trading volume. Proceeds are being used to expand the company's landbank. As of June 2003, China Overseas had a landbank of 40 million square feet and says it wants to replenish about 15 million square feet per annum.
The company is one of the most geographically diversified Chinese property developers and registered sales of HK$1.55 billion ($198 million) during the first half of the year, of which HK$1.5 billion derived from China and only HK$45 million from Hong Kong. About 70% of PRC sales came from the company's Seaview development in Shenzhen and its Zhonghai Fuyuan development in Beijing.
Unlike many Chinese property developers, it is fairly lightly geared (7% net during the first half) and has a large number of projects under development (87 during the first half). With property sales increasing 116% year-on-year to the end of June, the company achieved a profit margin of 18% and net income growth of 18% to HK$212 million ($27 million).
