China Vanke Co. (000002), the biggest developer by market value traded on the nation’s exchanges, may be planning to convert its foreign-currency denominated shares for a listing in Hong Kong, according to Credit Suisse Group AG.
Vanke suspended trading in both its B shares and yuan- denominated A shares from today as the company is “planning important matters,” according to a filing to the Shenzhen stock exchange yesterday, in which the company didn’t elaborate.
Vanke would be joining China International Marine Containers Group Co. (2039), the first Chinese company to leave the B share market for the Hong Kong bourse where the daily trading volume is more than 3,000 times larger, according to data compiled by Bloomberg. The conversion gives the Shenzhen-based developer direct access to global investors as funding channels remain restricted on the Chinese mainland amid government curbs aimed at stemming speculation that has driven up home prices.
“This is a long expected move,” Jinsong Du, a Hong Kong- based property analyst at Credit Suisse, wrote in an e-mailed report today, citing Vanke’s earlier indications of the intention to list in Hong Kong. “It seems this process has accelerated after CIMC successfully converted its B shares to H shares last week,” referring to Chinese companies traded in Hong Kong.
Tan Huajie, Vanke’s Shenzhen-based board secretary, couldn’t immediately be reached for a comment on the report.
A listing in Hong Kong will give Vanke a “smoother funding channel” than Hong Kong-listed Winsor Properties Holdings Ltd., in which Vanke bought a 79.26 percent stake in July, said Tian Shixin, a Shanghai-based analyst at BOC International China Ltd.
“In a capital intensive industry like real estate, the more cash you have, the faster you can grow,” she said.
About HK$22.6 million of Vanke’s B shares on average changed hands daily in the past six months, according to data compiled by Bloomberg, compared with HK$302.1 billion for Evergrande Real Estate Group Ltd. (3333), a Hong Kong traded Chinese developer that’s less than half the market value of Vanke.
Chinese real estate companies’ funding environment “remains not optimistic” as new development loans fall, restricting housing starts and investments even as a rebound in sales improves their ability to repay debt, Vanke said in its first-half report on Aug. 6.
China’s B-share markets were set up in 1992 to give local companies a way to raise funds from foreign investors, who were banned from buying securities denominated in yuan. Foreigners and Chinese individuals are allowed to trade B shares.
Interest in the B-share market has waned as the government allowed qualified overseas investors to access the larger, more liquid A-share market.
Vanke had 1.31 billion B shares, denominated in Hong Kong dollars, as of Sept. 30, according to the company. The stock has gained 63 percent this year in Shenzhen trading. Its A shares, which are seven times as many, rallied 35 percent, compared with a 0.3 percent gain in the benchmark Shenzhen Composite Index. (SZCOMP)
“After converting to H shares, China Vanke’s significant valuation discount to other leading Hong Kong-listed China property developers should warrant a significant relative upside for China Vanke H shares,” Du wrote. “We expect a potential switch for investors from some stocks with rich valuation to China Vanke H.”
Vanke’s B shares trade at about 8.7 times estimated 2012 earnings, which compares with about 11 times at Hong Kong-listed China Overseas Land & Investment Ltd. (688), according to BOC International’s Tian. China Overseas has rallied almost 80 percent this year.
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