Greentown returns to market with a $297 million placement

The company takes advantage of a record high share price and positive sector sentiment, but holds off on plans for a concurrent CB that could have doubled the proceeds.
Taking advantage of a strong day in the market and a fresh record high in its own share price, residential property developer Greentown China Holdings yesterday raised HK$2.31 billion ($297 million) from a top-up share placement.

This was Greentown's second return to the capital markets since its $396 million initial public offering in July last year, with the Zhejiang-based developer also having done a $400 million high-yield bond in November. The IPO came at the tail end of the six-week correction in global equity markets which resulted in the management having to trim its fund raising targets, thus adding to the need to come back for more as the company continues to grow.

The company told investors that the proceeds from the placement will be used for further land acquisitions as well as to develop key projects that were launched during 2006.

However, the Greentown management decided not to go ahead and sell an additional $300 million of convertible bonds last night even though it had approached banks for proposals on such an issue earlier in the day. Sources say the managementÆs expectations of what kind of terms would be achievable in the current market environment may have been a bit high, but note that the company has retained an option to issue the CB separately in the near-term even though there will be a three-month lock-up on other share sales.

With the focus solely on the placement, demand was strong with approximately 40 investors participating and the total issue comfortably covered. The sale attracted both existing investors who bought into the company at the IPO and newcomers to the stock, who may have found it difficult to pick up shares in the market given that the daily trading volume is typically well below five million shares. The amount of shares sold last night accounted for a full 40% of the free-float.

ôThis company has always been under-held and together with the positive sentiment for the sector following Country GardenÆs IPO and the fact that this stock is still cheap versus its peers, this gave support for the deal,ö says one observer.

However, one source says there was an anchor investor in the placement that took a large chunk of the shares available and helped ensure the deal could be completed within three hours even though it wasnÆt launched until just before 7pm Hong Kong time. The identity of this buyer wasnÆt known, but it is believed to have been an existing shareholder of the company.

The offer comprised 141.5 million shares, or just over 10% of the company, which were marketed to investors at a price between HK$16.35 and HK$16.65. The range translated into a discount of 2% to 3.8% versus yesterdayÆs record close of HK$17.

The final price was set that the bottom of the range for a 3.8% discount. This wasnÆt bad given that the share price gained 5.6% earlier in the day after adjusting for the fact that it started trading without the right to a dividend of HK$0.36 per share. Like most other Hong Kong-listed Mainland property plays, Greentown has also been on a strong upward trend since March 5, adding 48%. It has more than doubled from its IPO price of HK$8.22.

JPMorgan and UBS acted as joint bookrunners for the placement. The pair also arranged the IPO and the high-yield bond.
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