Evergrande Real Estate raises $561 million from top-up placement

The share price falls after the capital raising, but Moody’s says the deal will enhance the Chinese property developer’s balance sheet liquidity.

The share price of Hong Kong-listed Evergrande Real Estate Group fell 7.1% yesterday after the large-scale integrated Chinese residential property developer raised HK$4.35 billion ($561 million) from a top-up placement on Wednesday night.

The deal was done at a 6.5% discount and was the largest top-up placement for a Hong Kong-listed company since the start of this year, according to Dealogic data. Some other Chinese property companies have successfully tapped the bond market this year, including Shimao Property and Country Garden.

Evergrande’s follow-on came after its share price had gained more than 65% from a low in September last year. The company has been growing rapidly during the past few years, supported mainly by debt, and the share placement will enhance its equity base and balance sheet liquidity, according to Moody’s.

“The share placement announced on January 17 2012 is credit positive, and is a prudent move by Evergrande’s management to improve its debt leverage and liquidity position,” Kaven Tsang, a Moody’s senior analyst, said in a report yesterday.

Evergrande said it plans to use the proceeds to repay debt and for general working capital purposes.

The deal launched a little after 7pm Hong Kong time on Wednesday and closed in about four hours, a source said yesterday. At least four other equity and equity-linked deals were in the market at the same time, making it the busiest night in the Asian equity capital markets so far this year.

Hedge funds came into the Evergrande transaction in size, while long-only investors were more selective in their participation, the source said, adding that there were close to 60 investors in the order book. There were more Asian investors, but quite a few European and US accounts also came in, particularly on the long-only side, the person noted.

Evergrande sold 1 billion shares, or about 6.7% of the company, at HK$4.35 each. The deal was marketed with a price range of HK$4.35 to HK$4.50, which represented a discount of between 3.2% and 6.5% to Wednesday’s closing price of HK$4.65.

The stock ended yesterday’s trading at HK$4.32, slightly below the offer price of HK$4.35, which was fixed at the bottom of the indicative range. Evergrande’s share price rose about 32% last year, while the Hang Seng Index gained about 23%. The HSI was almost unchanged yesterday.

The deal came with an option to increase the size to 1.2 billion shares, although it was not exercised. Including the upsize option, the company could have raised $673 million based on the final price.

There is a three-month lock-up on Evergrande and Xin Xin (BVI), which is Evergrande’s controlling shareholder as well as the selling entity, according to the term sheet. (Since the deal was done in the form of a top-up placement, Xin Xin initially sold existing shares and then subscribed to the same number of new shares at the same price to ensure all the proceeds go to the company.)

For the full year 2012, the group’s aggregate contracted sales amounted to Rmb92.3 billion ($14.8 billion), equivalent to 115.4% of its full-year contracted sales target of Rmb80 billion and an increase of 14.8% from 2011, Evergrande said in a statement earlier this month.

Its contracted sales target for 2013 will be Rmb100 billion and the company said in a separate statement that “the group has full confidence in achieving this target and will continue to maintain its position as the leading high-quality property developer with standardised operations in China”.

Bank of America Merrill Lynch, BOC International and Deutsche Bank were joint bookrunners for the deal.

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