Chinese developer Shimao to raise funds as Beijing lifts equity sales ban

CHINESE property developer Shimao Group Holdings plans a private placement of shares, becoming the second player in the cash-squeezed sector to tap equity fundraising options just a day after Beijing lifted a ban on such deals.

Shares of Shimao, a mid-sized developer, surged in Shanghai by their daily upward limit, or 9.9 per cent, on Wednesday (Nov 30) after the developer made the announcement in a filing late on Tuesday.

The fundraising target will not exceed 30 per cent of the current capital base, Shimao said. Based on the developer’s market value of 11.3 billion yuan (S$2.2 billion) on Wednesday the deal size could be up to US$474 million.

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

The Chinese securities regulator on Monday lifted a ban on fundraising via equity offerings for listed property companies.

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.

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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.

In its filing, Shimao said it aims to raise funds from 35 investors by a private placement of shares to “improve capital structure, ease liquidity difficulty and stabilise financial conditions”.

Shimao said the proceeds from the share sale would be used to ensure it could hand over properties to buyers and to repay some debts and replenish working capital.

Many cash-strapped Chinese developers have defaulted on debt obligations and have halted construction.

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

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 per cent.

A gauge tracking the sector slipped by 1.9 per cent by mid-morning in Hong Kong. REUTERS