Co-founder cashes in $232m via Longfor block

Co-founder Cai Kui sold shares in the Chinese property developer for the first time since resigning from a company management role in 2009.

Cai Kui, co-founder of Longfor Properties, took advantage of the stock’s recent rally to sell almost a tenth of his stake in the Chinese property developer late on Wednesday.

The secondary block trade raised HK$1.8 billion ($232 million) and sends a positive signal to the market given the recent paucity of real estate action in the Hong Kong primary market.

So far this year there has not been any equity deal worth $100 million or above that involves Chinese property companies.

From the seller’s perspective, offloading property shares through block trades are not often popular because they typically have to be discounted in order to attract sufficient demand. According to bankers, these discounts often exceed 5%, 

But Cai was able to sell his Longfor shares thanks to the company’s strong contracted home sales performance so far this year, which has driven the share price to its highest level in 16 months.

The Longfor share sale was also supported by the improved broader market sentiment after a spate of weak economic data cooled speculation of an imminent US policy rate hike. Hong Kong’s benchmark Hang Seng Index was close to its one-year high immediately before the sale.

Wednesday’s deal included 150 million Longfor shares pitched at a fixed price of HK$12 per share, translating into a 7% discount to the stock’s HK$12.9 Wednesday close. The shares were offered by Junson Development International, an investment entity under Cai’s control.

Credit Suisse and Goldman Sachs were joint bookrunners on the transaction.

Cai co-founded the company with his ex-wife Wu Yajin and got 29% of the company’s shares when he divorced Wu four years ago. After Wednesday’s sale Cai will retain about 26.5% in the property developer.

Well covered

Sources said the order book was multiple-times covered with allocations skewed towards long-only funds and the top-10 accounts. The deal was partly originated from reverse inquiries from investors.

Shares of Chongqing-based Longfor Properties have outperformed most of its peers so far this year, particularly some of the real estate market leaders embroiled in power struggles.

China Vanke, the country’s largest residential property developer, has been involved in a nasty boardroom power struggle since late last year that involves China’s second-biggest home seller Evergrande Real Estate as well as large conglomerates such as China Resources Group and Anbang Insurance.

Both China Vanke’s Hong Kong- and Shanghai-listed shares, as well as Evergrande's, have fallen in price year-to-date as investors have questioned the corporate governance of these companies.

By comparison, Longfor's share price has risen by 10% so far this year. It also has low housing inventory on hand, which allows for greater flexibility on pricing compared with other real estate firms still struggling to clear unsold homes.

Earlier this year, Longfor revised its full-year home sales target to Rmb75 billion ($11 billion), 21% higher than its initial target of Rmb62 billion.

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