Huge appetite for financing reflects Beijing’s tightening grip on bank lending
(SHANGHAI) Property developer Gemdale Corp said yesterday that it would raise about 20 billion yuan (S$4 billion) selling shares and bonds – part of an unprecedented series of fund-raisings in China’s booming real estate sector.
The scramble to raise funds reflects the breakneck growth of the property market, but it is also the result of authorities’ actions to make bank loans more expensive and difficult to obtain as they seek to cool property prices and the economy.
While some of the smallest real estate developers are suffering, a bull run in the stock market means bigger companies are having no problem obtaining funds.
‘A flood of developers is turning to the capital markets for money as borrowing costs keep rising,’ said Yang Xingfeng, an analyst at TX Investment Consulting Co. ‘Equity investors are unlikely to be disappointed during this real estate boom.’
Gemdale, which has real estate development tie-ups with Dutch financial services giant ING Groep NV, said it would make a public offer of up to 360 million new A shares to help fund 15 residential property projects.
The Shenzhen-based company’s shares climbed 3.22 per cent to a record closing high of 52.53 yuan yesterday. At that price, the share offer could raise as much as 18.9 billion yuan.
In addition, Gemdale said that it would raise up to 1.2 billion yuan by selling bonds with tenors of at least five years.
That could make it the first firm to issue bonds since the government, aiming to expand the corporate bond market as an alternative to bank lending, transferred supervision of it to the securities regulator from the top economic planning agency.
‘As China’s interest rates keep rising, selling bonds will help reduce capital costs and alleviate the risks of purely relying on bank loans,’ Gemdale said in a statement.
Home prices in China’s major cities such as Shanghai and Shenzhen have more than tripled since 2001 and are still climbing, buoyed by rising incomes and speculative trading.
On the back of this boom, Gemdale reported early this month that net profit jumped 53 per cent from a year earlier to 205.6 million yuan in the first half of 2007.
China Vanke Co, the nation’s biggest listed property developer, said yesterday that it would raise as much as 10 billion yuan by selling new shares to fund real estate projects.
Poly Real Estate Group announced last month that it would issue up to 350 million shares to raise 19.42 billion yuan for expansion.
And Shanghai Industrial Development Co, a steel products maker that is transforming itself into a major real estate developer, said this month that it would sell up to 160 million new shares to fund its purchase of property-related assets worth 4.19 billion yuan.
Since last year the government has been trying to rein in real estate prices through tax measures, administrative controls and restrictions on lending to the sector, but prices have continued rising.
Late on Tuesday, the central bank announced its fourth interest rate hike this year. Analysts said the property sector was one of the most vulnerable to higher interest rates, but yesterday the shares of many property developers rose strongly.
Source: Reuters (Business Times 23 Aug 07)