Like Li & Fung, which sold $356 million worth of new shares on Wednesday, Kowloon Development took advantage of a near record high share price to boost its coffers. Bankers predict more companies will follow as the local stock market continues to look strong.
The Hang Seng Index has gained 2,000 points, or 7.6%, since its lows in mid-June and has recovered all the losses incurred during the global equity market sell-down that began in mid-May. However, the HSIÆs year-to-date gain of 15.9% pales in comparison with Kowloon DevelopmentÆs 70% jump, which has been driven by a fairly aggressive accumulation of land and an increased focus on Macau and Mainland China.
This is the second time in four months that the mid-sized developer has raised cash in the equity market. In May it executed a $180 million private placement. But according to one market watcher, investors were largely undeterred as the money is being put to good use in its ongoing and future projects. The share price has also continued to edge higher since the previous placement.
According to the term sheet, the money will be used for capital expenditures and land acquisitions in China as well as for working capital.
The companyÆs controlling shareholder, the Polytec group, sold 87 million shares, or 12.8% of the company, at a fixed offer price of HK$13.38 after strong demand allowed the bookrunner to use a greenshoe option in full and increase the base offering of 58 million shares by 50%. Polytec will now subscribe to the same amount of new shares at the same price.
According to one source, the deal was comfortably oversubscribed at the final size as well, with the demand said to have come in roughly equal portions from Asia, Europe and the US. Despite the sharp gains in the share price this year, the order book contained a lot of new investors.
The price equaled a 5.6% discount to ThursdayÆs closing price of HK$14.18, which is less that 5% off the company's record high of HK$14.80 on August 14. The May placement, which was arranged by Cazenove, HSBC and JPMorgan, was done at HK$12.40 per share.
As an added incentive for buying into the placement, investors will be eligible to receive the HK$0.13 per share interim dividend that was announced in connection with the first half earnings release two weeks ago. The dividend will be paid on October 6.
The companyÆs underlying net profit increased by 42% in the first six months this year to HK$258 million ($33.2 million), while the net profit including property revaluation gains edged up 6% to HK$318 million.
Thanks to two major acquisitions in Macau and Mainland China in the first half, the company has increased its land bank by 3.88 million square metres. Aside from these new acquisitions, the company also holds 5,600sqm of land for a residential and commercial development in Hong KongÆs Kennedy Town.
In Macau, Kowloon Development paid approximately $1.09 billion for an 80% stake in three sites near the future landing point of the bridge that will link Hong Kong, Macau and Zhuhai. The intention is to develop the land into luxury residential housing split on about 8,000 units.
In June the company won a public tender for a plot of land in Shenyang after bidding Rmb830 million ($105 million). The site has a gross floor area of 2.9 million sqm and is approved for commercial and residential use.
The management said at the time of the earnings release it is confident that the austerity measures implemented in China will result in a more stable market that will provide a solid foundation for long-term growth. It also believes that the strong growth in the Macau economy will continue to support a need for a large workforce that will in turn require residential accommodation.