China's Country Garden plans HK$2.8b share sale to refinance debt

COUNTRY Garden said on Wednesday (Jul 27) it plans to raise HK$2.8 billion (S$495.6 million) from a share sale to refinance offshore debt, sending Hong Kong-listed shares of the Chinese developer and the wider property sector tumbling.

The transaction comes after a rally in property stocks earlier this week following reports Beijing plans a real estate fund worth up to US$44 billion to help developers resolve a crippling debt crisis.

However, a steep discount in Country Garden’s equity sale has stoked investor concerns about the refinancing needs of other Chinese developers who are scrambling to raise funds offshore after last year’s debt crunch dried up market liquidity.

Country Garden, China’s top developer by sales, will issue 870 million new shares, or 3.62 per cent of the enlarged share capital, at HK$3.25 each, to professional and institutional investors in the sale, the company said in a filing.

The issue price represents a 12.63 per cent discount to Tuesday’s close of HK$3.72 each, it added. UBS is the placing agent. The proceeds will be used to refinance existing offshore debt, general working capital and future development purposes.

Country Garden’s shares plummeted 14.5 per cent to HK$3.18 on the Hong Kong bourse by Wednesday afternoon, having gained 18.5 per cent in the previous 2 sessions. The developer’s property services unit shed nearly 22 per cent.

In the wider market, Hang Seng Mainland Properties Index plunged 6 per cent. Smaller peer CIFI lost 11 per cent.

The deal was upsized and at least 3-times oversubscribed, according to a source with direct knowledge of the matter, who could not be named as he was not permitted to speak to media.

Despite the oversubscription, the person warned other Chinese property companies would need to see a significant improvement in market sentiment to tap the funding markets.

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Country Garden’s upcoming offshore debt obligations include a US$440 million syndicated loan due in December and a US$625 million bond due in January, according to analysts and data by Refinitiv.

That suggests the developer might need to do more refinancing ahead of the maturities.

It also has onshore bonds worth 4 billion yuan (S$821.8 million) maturing this year.

While Country Garden’s share sale is credit positive for the company, analysts said it shows how cash-starved the developer is given it is a small-sized deal with steep discount.

Investors now worry that could lead to more equity financing in the market.

Jefferies analyst Shujin Chen said in a note he expects downside risk in August for most private developers, considering limited policy support, a peak in bond maturities and disappointing expected first half financial results.

“Even some of the best non-SOE (state-owned) developers cannot guarantee their payments for next year’s debt to mature,” Chen said. REUTERS