Chinese property placements draw strong demand

CC Land pockets $374 million, while Shenzhen Investment raises $168 million.
Two Hong Kong-listed Mainland property companies were in the market yesterday with top-up placements to raise capital for land bank acquisitions. The share sales, which tapped a combined $542 million, came as both companies were trading at or near record levels and as the Hong Kong market finished at a fresh high for a third straight day.

Both deals met with good demand and were increased from the original size, making full and immediate use of their respective options to sell more shares.

CC Land Holdings, which focuses on property development in Western China, raised HK$2.92 billion ($374 million) after pricing its offering at the top of the indicated range. The final price of HK$8.10 represents a 6.7% discount to MondayÆs close of HK$8.68. The stock was suspended from the opening of trading yesterday, allowing the deal to be launched mid-morning.

Citi and Credit Suisse, which were the joint bookrunners, offered the shares at a maximum discount of 10.1% but with the deal more than seven times covered and with about 120 accounts in the book they had no problem guiding the price to the top, sources say. The deal was also increased to 360 million shares from 280 million, which brought the deal size to about 19.9% of its existing share capital û just below the 20% it had approval from its shareholders to sell.

Asian investors accounted for the bulk of the demand, but there was also some quite strong take-up by European investors who got a chance to look at the deal early morning their time.

Citi had a busy day as it also acted as the sole bookrunner for Shenzhen InvestmentÆs placement, which ended up raising HK$1.31 billion ($168 million). The company sold 6.6% of its existing share capital, or 200 million shares û including a 40 million-share upsize option - at a price of HK$6.56. The final price was set towards the top end of the indicated HK$6.19 to HK$6.60 range and represented a 3.5% discount to the latest market price of HK$6.80. The stock traded yesterday morning before being suspended in the afternoon session to launch the placement.

A source familiar with the offering says this deal too could have priced at the top as the book was several times covered with close to 50 participating investors û most of who were of very high quality and didnÆt attach any price limits to their orders. However, with the share price having jumped 15.6% in the past three days, including a 4.6% gain in yesterdayÆs morning session, the company was said to have wanted to leave a little bit on the table.

Shenzhen InvestmentÆs share price has almost tripled from HK$2.29 a year ago as investors have welcomed the companyÆs increasing focus on property development. Its portfolio includes some projects in the Lowu district in Shenzhen which lies on the border with Hong Kong and is seen as a high-growth area.

Shenzhen Investment, which is the Hong Kong-listed unit of the Shenzhen municipal government, has been transforming itself from a diverse investment company to a vehicle focusing primarily on property development and infrastructure, including toll roads that it holds through its stake in Hong Kong-listed Road King. Over the past year it has been selling non-core assets, while at the same time accumulating more land for future developments.

Last month a company executive told a local newspaper that the company plans to buy 1 million square metres of land for about Rmb2.5 billion ($330 million) in the second half of this year. It also announced that it had bought a 1.8 million square metre site in Foshan for about $290 million.

CC Land too is a relatively late mover into properties after it bought 100% of a Mainland developer from its chairman in November last year in what was essentially a backdoor listing of this business. In connection with the takeover, the company also changed its name from Qualipak. Prior to that acquisition the company was mainly active within the manufacturing and trading of watch boxes, gift boxes, spectacle cases and bags and pouches, treasury investment activities, and the design, manufacturing and sale of soft baggage, travel bags, back-packs and brief cases.

Investors are interested in CC Land because of its focus on Western China û most of its land bank is in the high-growth cities of Chongqing and Chengdu û which is a rarity among the Hong Kong-listed developers. Given the governmentÆs intention to develop this part of the country, there are seen to be large growth potential for developers like CC Land. The company it bought has 15 years of experience in property developments in this part of the country.

ôPeople like the fact that these areas are less crowded,ö says one source familiar with the company, and adds that CC Land is also aiming to increase its land bank to about six million square metres of attributable gross floor area by the end of August and to eight million square metres by the end of this year. It currently has just under four million square metres of attributable GFA land in its portfolio.

In reaction to its change of business, CC LandÆs share price has jumped 130% from a 2007 low of HK$3.77 to yesterdayÆs close. It finished at a record high of HK$8.80 last Friday.

One analysts notes that despite the share price rallies, both CC Land and Shenzhen Investment are also still trading at small discounts to their net asset values which makes them attractive in relation to other Mainland developers that for the most part are now trading at premiums to their estimated NAV.

The response to the these two placements showed none of the investor caution that became evident in the first half of May after a slew of their peers had raised capital either through share placements or through convertible bonds. The strong market environment led the issuers to ask for high CB premiums and tighter and tighter share price discounts to the market price. Eventually this led to some investor fatigue that showed in the form of weak demand and prices that were fixed towards the low end of the offered ranges. Several of the issuers also struggled in the aftermarket and the CBs routinely traded below par immediately after the deal.

There have been no follow-ons or placements by Mainland property companies since mid-May, however, and deeming from these two offerings, the appetite now seems to have returned. It remains to be seen whether the demand was company specific or whether it might extend to other players in the sector.
¬ Haymarket Media Limited. All rights reserved.
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