Poly (Hong Kong) Investments raises $397 million via placement

Poly (Hong Kong) Investments yesterday raised HK$3.078 billion ($397 million) through a top-up placement -- the company's second equity fundraising this year. The property developer said it will use the money to pay the outstanding balance on a recent acquisition of land from its parent company and to fund future investments.

The base deal size was 320 million shares which were offered at a price between HK$7.80 and HK$8.10 a share. The price range translated into a discount of between 8.9% and 12.3% versus Tuesday's closing price. The deal came with an upsize option, which was fully exercised, resulting in an additional 60 million shares being injected into the offering.

The deal was launched yesterday morning Hong Kong time, and the order book was kept open until late in the afternoon in order to give European investors the chance to participate. It priced at the top, for the tightest possible discount of 8.9%.

The placement was covered 45 minutes after opening. Investor demand was said to be very strong -- hence the upsize -- with every major investor type taking part: long-only funds, qualified domestic institutional investors (QDII), alternative asset funds and some private banking money.

Poly (Hong Kong) is the Hong Kong-listed arm of the China Poly Group Corporation. The Poly Group is a major state-owned Chinese enterprise, which last year ranked 28th out of the country's large-scale central enterprises in terms of profit. The Poly Group has two business lines: trading military and civil products; and developing real estate. It has 30 million square metres of landbank spread across 20 Chinese cities.

In late September, Poly (Hong Kong) announced that it would buy from its parent five property development sites in five different cities: Shanghai, Shenzhen, Hainan, Foshan and Suzhou. With a combined gross floor area of 2.1 million sqm, the new sites will increase the company's development landbank by 29%. The consideration for this new land is HK$2.7 billion.

The rationale for the acquisition is that the company has achieved strong sales this year - Rmb5.5 billion ($805 million) as of the end of August - and is expanding its land bank in order to maintain growth. These purchases in particular will also help build the company's presence in several major cities in both the Yangtze River Delta and the Pearl River Delta.

The money raised from the placement will be used to pay the remaining balance for these acquisitions, to pay for the future expansion of its landbank, and for general corporate purposes.

"Although the size of Poly (Hong Kong) is relatively small when compared to other major developers, including its sibling company Poly Real Estate Group, the company boasts a very strong and experienced management," according to a research report published at the time of the announcement. "Along with the support of China Poly Group, we expect the company to evolve into one of the leading developers in China," the report said.

This is not the first time this year that Poly (Hong Kong) has raised capital. In June it sold 230 million shares worth a total of $100 million. The price of the June placement -- HK$3.45 per a share -- is less than half the price of yesterday's deal, indicating how quickly Poly (Hong Kong)'s share price has risen. Since the beginning of March, the stock has more than quadrupled in value. Participants in the latest placement seemingly still believe that there is more upside to be realised, however.

BOC International and Citi acted as joint bookrunners for the placement.

Property is an ongoing theme with regard to Chinese equity issuance at the moment. China Real Estate Information Corporation is currently on the road marketing a US initial public offering of up to $248 million, which is due to price tonight. A number of Chinese property developers are also pre-marketing Hong Kong IPOs right now. The sentiment for Chinese property IPOs has not been that favourable over the past month, with most of the newcomers in this sector trading down in the secondary market. Yesterday, however, Powerlong Real Estate finished its first day of trading at HK$2.80 -- 1.8% above its IPO price. It is worth noting though, that Powerlong did fix its IPO price 17% below the original range at a generous 2010 price-to-earnings multiple of 6.3 times -- thus it is questionable whether yesterday's modest gains will be enough to swing sentiment around.