Quick placement from Shanghai Forte

More fundraising activity expected as Hang Seng Index breaks through 16,000.
Property developer Shanghai Forte Land took advantage of a record high share price yesterday (April 3) to raise HK$694.9 million ($89.5 million) from a placement of new shares.

It was the companyÆs second follow-on share sale since it listed on Hong KongÆs main board in February 2004. Just over a year ago, it raised HK$413.4 million from a similar new share deal.

Morgan Stanley has acted as lead manager for all of the group's public equity offerings and brought the latest deal as the Hang Seng Index closed above 16,000 points for the first time in five years.

Shanghai Forte offered 175.9 million new H-shares between HK$3.80 to HK$3.98. This equated to a 3.5% to 7.9% discount to MondayÆs record close of $4.125.

The price was fixed near the top end at HK$3.95 where there was believed to have been some price sensitivity. That translated into a 4.2% discount, or slightly tighter than last yearÆs placement, which was done at a 4.4% discount to the prevailing market price û also a record high at the time.

People familiar with the offering said demand was strong, with the book five times covered despite the fact that it was open for just over one hour and closed before most US investors came to work. About 60 investors were said to have participated with 70% to 75% of the demand coming from Asia and the main part of the rest from Europe.

Allocations were expected to be slightly less skewed towards Asian investors, giving them about 60-65% of the deal.

The company did a non-deal roadshow about 1.5 weeks ago and many of the investors who bought into the placement had met with the company then. That preparation time also meant that more long-only funds are said to have been able to participate even though the bookbuilding was so quick.

The placement accounted for 20% of the companyÆs outstanding H-share capital, which is the maximum a Hong Kong-listed company is allowed to sell in any given fiscal year, and equalled 7.5% of the companyÆs total issued share capital.

Shanghai Forte has not specified how it will use the proceeds, saying only that they would go towards general working capital and real estate investments.

Last month, chief executive Fan Wei told reporters Shanghai Forte will spend about Rmb1 billion ($124.5 million) to build its land bank this year, compared with Rmb1.5 billion in 2005. He also projected that property sales would triple to Rmb7 billion in 2006.

The company posted a 24.6% increase in net profit last year to Rmb560.6 million, which included Rmb216.3 million in negative goodwill recognized as income. Revenues were up 11% to Rmb2.03 billion.

ôYou can see this as being an opportunistic placement and the company is probably keen to get in first since there are likely to a lot more companies trying to take advantage of their high share prices,ö one sales trader comments. ôBut at the same time you can say that the company is actually just satisfying the demand in the market as there is a flood of liquidity out there.ö

Other market watchers note that investor appetite for the mainland property sector remains hot, despite continuing talk of oversupply and price bubbles û particularly in Shanghai where the local government has been forced to launch a series of measures to cool down the rapid growth.

However, Shanghai Forte, which derives more than 50% of its revenues from the Shanghai market, has seen its share price rise 75.5% since its IPO. Similarly, Guangzhou R&F Properties has rallied 284% since its IPO in July last year and Agile Property Holdings is up 97% since its trading debut in early December.

Since it took Shanghai Forte public Morgan Stanley has become a noticeable player in raising funds for mainland property developers. It has also led IPOs for Guangzhou R&F (jointly with Credit Suisse) and Agile Properties.

Recently it was also mandated as joint bookrunner for Shimao Property HoldingsÆ upcoming IPO alongside Goldman Sachs, which had already been working on the deal for more than a year. That offering is expected to raise about $400 million.

¬ Haymarket Media Limited. All rights reserved.
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