Chinese developers rush to raise funds as Beijing lifts equity sales ban

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By Xie Yu and Ziyi Tang


HONG KONG (Reuters) -Chinese property developers are rushing to raise funds via sale of equity in a key test of investor appetite for the battered sector, after Beijing lifted a ban on such deals to ease a stifling liquidity crunch and reverse an economic slowdown.

At least three developers have announced fundraising plans within a couple of days of the Chinese securities regulator lifting a ban on fundraising via equity offerings for listed property companies.

More developers are set to tap the equity fundraising window in the days ahead, analysts said, even as persistent COVID-19 curbs continue to weigh on demand from homebuyers, clouding the prospects of a recovery in the sector.

Xinhu Zhongbao Co Ltd said on Wednesday that it planned to launch a private placement of shares to fund the delivery of housing projects, the renovation of shanty houses, to replenish its operating funds and repay debt.

The company will target 35 investors in the share sale, and the fundraising will not exceed 20% of the current capital base, according to a filing. Based on its current market value, the deal size could be as much as 4.8 billion yuan ($675 million).

On Tuesday, Shimao Group Holdings Ltd, a mid-sized developer, also said it aimed to raise funds via a private placement of shares to "improve capital structure, ease liquidity difficulty and stabilise financial conditions".

Shimao, whose stock surged in Shanghai by their daily upward limit or 9.9% on Wednesday, said that the proceeds would be used to ensure it could hand over properties to buyers and to repay some debts and replenish working capital.

Developer Hubei Fuxing Science and Technology Co had announced a similar move earlier on Tuesday.

Property developers that are able to access equity financing will benefit from improved balance sheets as well as merger and acquisition opportunities, analysts from Citic Securities said in a note on Wednesday.

Beijing has in recent weeks stepped up support for the industry to loosen a liquidity squeeze that has stifled the sector, a business that accounts for a quarter of the Chinese economy and has been a key driver of growth.

China had suspended refinancing by listed property firms in August 2009 as part of its attempts to control surging home prices.

Regulators briefly lifted the suspension by granting approval to refinancing requests by a selection of property firms starting from 2013, but reimposed restrictions in 2016 to curb housing prices.

BOOSTING DEMAND

Many cash-strapped Chinese developers have defaulted on debt obligations and have halted construction since a credit-crisis hit the sector last year after Beijing cracked down on a debt-fuelled building boom in the world's second-largest economy.

Shanghai-based Shimao first missed a public offshore bond obligation in July this year and became the first major Chinese developer to begin negotiating restructuring terms with creditors.

In its filing, Shimao also said its fundraising target will not exceed 30% of the current capital base. Based on the developer's market value of 11.3 billion yuan ($1.58 billion) on Wednesday the deal size could be up to $474 million.

Recent Beijing policies have sent a clear message that regulators will support "good quality" companies, as well as making sure of the delivery of houses, said Renyuan Zhang, a credit analyst with S&P Ratings in a research note.

"The policies will help restore confidence in the market, but investors should pay attention to how and when they will be implemented, and in what scope," he said, adding not all of the property developers will benefit from support measures.

Minyue Liu, an investment specialist at BNP Paribas Asset Management, described policies introduced over the last few weeks as a "comprehensive set of guidelines to the market" to support the property sector.

She said the industry is now looking out for further signals on boosting demand from potential home buyers.

"However, it may take some time for property demand to stabilise or recover," she said, adding the zero-COVID policy and weak macroeconomic environment are still restraining home buyers' confidence and willingness to spend.

Underscoring the continued uncertainty in the sector, Sunac Holdings issued a profit warning late on Tuesday, with the developer expecting profit for last year to plunge by around 207%.

Also, China Evergrande Group, which has been at the centre of China's property crisis, said it would lower the monthly repayment to investors of its wealth management products to 2,000 yuan each, starting from this month.

Evergrande, which has more than $300 billion in liabilities, had said in December and March that they would repay each investor 8,000 yuan ($1,257) per month as principal payment irrespective of when the investment matures.

"Asset disposal and cash collection have fallen below expectations", Evergrande's wealth management unit said in a filing on Wednesday, as a reason for revising down its payment for investors of its wealth management products.

(Reporting by Xie Yu and Ziyi Tang; Editing by Sumeet Chatterjee and Kenneth Maxwell, Editing by Louise Heavens)

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