Business

Friday August 28, 2009

Vanke to raise US$1.6b via new share offer


But the proposed issue may hurt shaky China’s stock market

SHANGHAI: China Vanke, the country’s No.2 property developer, plans to raise up to US$1.6bil via a new share offer amid a property revival, though the issue is likely to dent a wobbly stock market.

A rebound in real estate prices has bolstered developers’ earnings and spurred them to raise funds for new projects.

But worries about hefty new share issues have weighed heavily on China’s stock market as it struggles to stabilise following a two-week, 20% slide earlier this month.

The market was battered by concerns that valuations had become stretched after a heated 90% rally earlier this year, as well as signs of tightening market liquidity as China clamped down on bank lending.

China’s benchmark stock index initially slipped yesterday following news of Vanke’s offer, falling as much as 1.2%, but later broke into positive territory.

A woman riding past new highrise developments in Beijing's Central Business District. A rebound in real estate prices has bolstered developers' earnings and spurred them to raise funds for new projects - AFP

Vanke’s shares opened 2.7% lower, and by 0318 GMT were trading down 1.7% at 10.76 yuan.

”The Vanke plan has investors worried about more possible fund raising and the pace of IPOs isn’t letting up, so confidence is waning in the short term,” said analyst Wu Nan, from Xiangcai Securities.

Beijing is keen to bolster housing investment, to take over from spending on infrastructure as a driver of economic recovery. Housing investment rose an annual 11.6% in January-July.

The rebound poses a dilemma on house prices, however, as the government wants higher prices to encourage development, not speculation.

Some economists are warning of a “false prosperity” in an economy that is just recovering from the shock of the global crisis, while stoking worries over bubbling asset prices.

In China’s property market, even some white-collar workers with relatively high incomes find it difficult to afford homes.

Several developers have announced fund raising plans, with China Baoan Group on Wednesday saying it would raise 1.15 billion yuan in a private share placement.

Vanke will use the offer proceeds to support housing projects and supplement its working capital.

The housing rebound has driven up earnings in the sector, with developer Poly Real Estate Group Co Ltd announcing a 35% jump in its first-half net profit.

Vanke posted a 22.5% increase in its first-half profit earlier this month and raised its 2009 target for housing starts.

“The market has been looking forward to Vanke’s share offer for some time as we think it’s good for (the company’s) rapid development,” said Fang Yan, analyst at Guosen Securities Co.

But the new offers have added to market jitters.

Two big IPOs have been approved by regulators this month: a 6.4 billion yuan offer by China CNR Corp and a 16.85 billion yuan IPO by Metallurgical Group of China.

China State Construction Engineering Corp, a building and real estate firm, last month raised US$7.3bil in the world’s biggest IPO in a year, making it China’s biggest listed developer.

Vanke’s planned offering is pending approval by shareholders and the China Securities Regulatory Commission.

Vanke will price its new shares at no less than the weighted average of its locally listed A shares over the 20 trading days up to the eve of publication of the issue prospectus, it said. — Reuters


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