Franshion Property block fetches $564m on the HKSE

GIC now owns 6.5% of the Hong Kong-listed property developer, while New China Life has become its second largest shareholder.

Franshion Properties China has raised $564 million via a private placement on Tuesday, with New China Life Insurance, Singapore's sovereign wealth fund GIC, and private equity firm Warburg Pincus investing in the Hong Kong-listed real estate developer.

Franshion Properties, which is controlled by Sinochem Corp, issued 1.6 billion shares at HK$2.73 per unit, representing a 9.9% discount to the June 8 closing price of HK$3.03 per unit, according to a filing on the Hong Kong Stock Exchange on Tuesday. The shares on offer represent 17.6% of the existing issued share capital.

The private placement launched amid a 36.5% jump in Franshion Properties' share price performance so far this year.

New China Life purchased 1.01 million shares, or 9.5%, and has become the company's second largest shareholder after Sinochem, the filing showed. GIC bought 698.1 million shares, boosting its stake to 6.5%, up from 3% prior to the share-sale.

Warburg Pincus meanwhile purchased 280.8 million shares, giving the private equity firm a 2.6% equity interest in the company, while Walter Kwok, the former chairman of Sun Hung Kai Properties, became a minority shareholder with a 0.70% stake.

Morgan Stanley acted as sole financial advisor and was also a placing agent along with HSBC and CCB International.

The majority of the proceeds will go towards re-financing outstanding debt.

Franshion Properties' net debt-to-adjusted capital ratio stood at 56% at year-end 2014, a substantial jump compared with 41% as of year-end 2013, according to the company's financial report.

Revenues totalled HK$29.5 billion in 2014, a 43% increase over HK$20.7 billion in 2013.

It focuses on commericial real estate development in Shanghai, Beijing, and the southern port city of Zhuhai.

Franshion Properties is the latest mainland developer to tap Hong Kong's capital markets.

Evergrande Real Estate Group defied plunging markets on May 29 to raise $600 million in a top up placement, with the syndicate forced to restructure the deal and bring back the placement with a hefty 18% discount to the last close.

Greenland Hong Kong raised $219 million from a secondary share sale on May 17, while CIFI Holdings secured $170.3 million in a placement on May 18.

Property developers generally are trying to raise cash as the government continues to move to support the slowing industry. The central government on May 10 dropped interest rates for the third time in six months. China also lowered the down-payment requirements for some home owners.

Chinese developers are therefore trying to take advantage of the favourable conditions and raise capital to purchase more land, given the cost will likely increase in the near future.

More developers are expecting higher sales growth, particularly in tier-1 cities. Barclays noted in a May 28 report that while both mortgage and construction loans are easily accessible, developers are generally staying disciplined in terms of land acquisitions and focusing on clearing inventory as well as improving cash flows. Most developers aim to strike balances between sales growth, profitability and cash flows, the report read.

However, tier-3 and tier-4 cities suffer from oversupply and sluggish demand, which will likely lead to increasing inventories and weak profitability for developers focused on these segments.

¬ Haymarket Media Limited. All rights reserved.
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