The chairman sold 305.8 million existing shares through his wholly-owned holding company Gemfair and will later buy 218.5 million new shares issued by Shimao at the same price, allowing the Mainland developer to reap about $500.8 million from the placement.
The shares were offered in a range between HK$17.88 and HK$18.27, representing a 3% to 5.1% discount to FridayÆs closing price of HK$18.84. According to sources, demand was pretty good as most investors still see upside for the Chinese property sector, but potential buyers also indicated they werenÆt willing to pay just any price.
A couple of hours after the books opened, sole bookrunner Morgan Stanley gave guidance to investors that the deal was likely to price at the lower half of the indicated range and, in the end, the price was fixed right at the bottom for a total deal size of HK$5.47 billion ($701 million).
Given the recent strong gains in the share price and the large size of the placement, a 5.1% discount can be regarded as reasonable. By comparison, the $297 million top-up placement by fellow Mainland developer Greentown China Holdings a day earlier was priced at a 3.8% discount.
About 90 to 100 investors were said to have submitted orders for the Shimao offering, despite it being launched Friday night at the about 5.30pm Hong Kong time û a time when Asia-based fund managers are typically on their way out for the weekend. According to sources though, about half the deal was placed with Asian investors, while about one-third went to the US and the remaining 20% or so to Europe. The order book was kept open until about 9pm to give some existing Shimao investors in the US a chance to participate, they say.
At the final price, chairman Hui Wing Mau raised about $200.3 million from the sale, which will reduce his stake in the company to 58.1% from 65.3%. ShimaoÆs share price has tripled since its listing at HK$6.26 in July last year, meaning investors who bought shares at the time of the IPO, or indeed before the listing, are sitting on hefty profits.
One source said Hui was to use the proceeds from this sale for private matters. However, these could potentially include the buyout of the 25.26% of Shimao International that Hui and his family don't already own. Shimao International, which is a sister company to Shimao Property, last month announced HuiÆs intention to pay between $234 million and HK$253 million for the outstanding shares and options in the company, which focuses on real estate developments outside of China.
The money raised by Shimao will go towards further land acquisitions, the source said without specifying. The local media has earlier quoted executive director Jason Hui as saying the company will bid for five mainland sites involving a gross floor area of more than 100,000 square metres each in Beijing, Guangzhou, Tianjin, Hangzhou and Changsha.
And last week chairman Hui signed a memorandum of understanding to buy a prime development site in Beijing for Rmb1.4 billion, according to a separate press report. The site will be used for a luxury hotel, offices, retail units and serviced apartments and will provide a gross floor area of about 210,000 square metres.
The transaction is the largest placement by a Hong Kong-listed company since Henderson Land Development raised $708 million through Morgan Stanley in mid November and the $860 million share sale by Hang Lung Development through Credit Suisse just a few days earlier.
It follows multiple fund raising exercises by other property developers in recent months û both through follow-ons and convertible bonds û and comes as Chinese real estate developers in particular have had a strong run since early March. That run has been supported by the ongoing urbanisation in the Mainland and higher-than-forecast economic growth numbers. The recent listing of Guangdong-based residential developer Country Garden has also helped boost valuations.
ôThere has been a sector re-rating on the back of Country GardenÆs IPO and investors still have an appetite for the space,ö says one observer. However, further government measures to curb lending have made the market a bit more volatile and nervous recently. It is clear that investors want to get compensated for that when they take part in off-market transactions, he adds.
Shimao Property was one of the top China real estate picks in a mid-April report by Credit Suisse, who says the company looks set to become one of the fastest growing China property companies in terms of NAV. It bases its estimates on a projection that the cap rate for commercial properties will fall by 200 basis points, which will benefit companies with the highest exposure to the commercial rental market. With a land bank of more than 20 million sqm of gross floor area, Shimao should also benefit as
landbank replenishments are set to become more competitive and costly.
Clifford Lam and Louisa Fok at the Swiss investment bank have an outperform recommendation and a target price of HK$24.58 on Shimao, which is in line with their 12-month forward NAV estimate and implies 30% upside from FridayÆs closing price.
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