Vanke among three major Chinese property developers that are a step closer to selling shares under Beijing’s ‘three arrows’ rescue plan
- Vanke, Poly Developments & Holdings and China Merchants Shekou Industrial Zone Holdings are leading smaller developers in the new A-share placements process so far
- “If A-share placement plans are approved by regulators, ‘it would help to reduce their asset-liability ratios and … shore up market confidence towards the real estate sector’, Fitch executive says
Vanke joins Poly Developments & Holdings and China Merchants Shekou Industrial Zone Holdings, China’s largest and sixth-biggest developers, respectively, in pursuing new A-share placements. About 30 developers have applied for share placements since last November and these firms are leading smaller developers in the process so far.
Poly Developments aims to raise 12.5 billion yuan while China Merchants Shekou plans to raise as much as 8.5 billion yuan from as many as 35 investors, according to separate statements from the Shanghai exchange in January and Shenzhen exchange in February. These developers replied to enquiries by regulators separately last Tuesday and are now awaiting further processing as well.
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“If their A-share placement plans are approved by China’s regulators, it would help to reduce their asset-liability ratios and control interest expenditure, and shore up market confidence towards the real estate sector,” Chloe He, director of Asia-Pacific corporate ratings at Fitch Ratings, told the Post on Wednesday.
The share placement plans by Vanke, Poly Developments and China Merchants Shekou come after Beijing introduced its “three arrows” rescue measures late last year, allowing property firms listed in China to issue bonds and raise funds in the onshore market after a period of six years.
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The approval process for the developers’ A-share placements could take time, with regulators analysing the impact of equity financing on the development of the property sector as well as the stock market very carefully, said Will Chu, a senior associate at CGS-CIMB Securities.
“What we can see from the processes so far is that China’s authorities tend to consider the biggest state-owned enterprises as a priority, than some smaller ones,” Chu said.
“In general, the net gearing ratios of all developers are rising, which means that all developers need [equity] capital.
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“When so many industry players are in need of [equity] capital, those large and important ones would likely be given preference for access to the equity market, in order for regulators to effectively restore confidence in the industry,” Chu said.
Vanke’s application for the A-share placement comes after it sold 300 million H-shares at HK$13.05 apiece in Hong Kong in March. A research note released on March 9 by Fitch said Vanke’s rating headroom would improve after the completion of its H-share placement, which was worth HK$3.9 billion, and its proposed A-share placement. The developer’s leverage would drop by 2 percentage points after the two share placements are completed, the rating agency said.
