Sunac raises $259 million from top-up placement

The deal comes as the stock hits a record high and is the second share sale by a Hong Kong-listed Chinese property company in less than a week.
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Sunac: focused on high-end property projects
<div style="text-align: left;"> Sunac: focused on high-end property projects </div>

Hong Kong-listed Sunac China Holdings last night raised HK$2.01 billion ($259 million) from a top-up placement, making it the second Chinese property developer to tap the equity capital markets in less than a week.

The desire to raise equity comes after a rally in Chinese property stocks during the past couple of months on the back of a more optimistic outlook for the Chinese economy and a recovery in property prices, particularly in the bigger cities. Sunac has gained 20% since the start of the year and closed at a record high of HK$7.19 yesterday. It is up 51% since late November when private equity firms CDH and Bain Capital reduced their stakes through two separate block trades.

Many Chinese developers have taken advantage of the strong bond market in the past year to issue debt and may want to balance that with some more equity on their balance sheet now that share prices are coming back. Sunac raised $400 million from a five-year high-yield bond in early October, for which it had to pay a fairly steep 12.5% coupon.

According to the term sheet, it will use the proceeds from the share sale to repay some outstanding debt and for land acquisitions.

A potential shift towards more capital-raising in the equity market has been expected, particularly in light of the strong appetite for Chinese property stocks right now, and the ball was set in motion last Wednesday when Evergrande Real Estate Group raised $561 million from a top-up placement that was priced at a 6.5% discount to the latest close.

Sunac, which is a smaller company than Evergrande, had to concede a slightly wider discount, but at 6.8% it was still viewed as pretty tight.

The company sold 300 million shares, which accounted for 9.9% of the existing share capital and 13 to 16 days of trading volume, depending on whether you look at the average turnover during the past one or three months.

The shares were offered at a price between HK$6.70 and HK$6.90, which translated into a discount of 4% to 6.8% versus yesterday’s close. Not too surprisingly, given the recent rally and the record-high close, the price was fixed at the bottom of the range for the maximum discount.

The deal attracted about 50 investors, including long-only accounts and hedge funds, as well as a few Chinese names. The demand was skewed towards hedge funds, although there were a couple of good long-only funds among the top orders, according to a source.

The level of demand was sufficient, but not exactly overwhelming, which suggests that some investors may be getting a bit cautious in light of the sharp share price gains. However, the order books were only open for two hours and the offering did come on a US holiday, which may have limited the number of potential buyers.

That said, observers argue that many investors may have missed the run-up in the sector since the beginning of this year and are now trying to catch up. And a discounted placement is a good opportunity to do just that.

This is Sunac’s first primary share sale since its initial public offering in October 2010. However, as mentioned investors got a chance to pick up the stock through two small block trades in late November that came within a week of each other. Each of the deals raised about $70 million and came at discounts of 9.5% and 7.2% respectively, which was equal to an absolute price of HK$4.30 and HK$4.50. Investors who bought the shares then have in other words made quite a lot of money.

Sunac focuses on high-end and high-quality property projects in five key economic regions in China — Beijing, Tianjin, Shanghai, Chongqing and Hangzhou. Two weeks ago the company announced that it had acquired a 46% stake in Tianjin Teda City Development, a company involved in land operation, infrastructure investments, sales and development of real estate, and investments and operation of commercial properties. It currently holds investment stakes in seven Chinese companies and is involved in three on-going property projects in Tianjin. The total investment cost was Rmb822 million ($131 million), including Rmb124.3 million of debt.

At least three banks were putting in bids for yesterday’s placement, according to sources. The mandate went to Citi, which acted as sole bookrunner for the transaction.

¬ Haymarket Media Limited. All rights reserved.
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