Greentown China Holdings Ltd. rose by a record in Hong Kong trading after Wharf Holdings Ltd. agreed to invest HK$5.1 billion ($657 million) in the developer, easing concerns of a funding squeeze.
Greentown surged 33 percent to HK$7.09 at close of local trading, the biggest advance on the broader Hang Seng Composite Index, after saying it will sell shares and convertible bonds to Hong Kong-based Wharf. Shares of the Hong Kong landlord climbed 2.2 percent to HK$44, the highest since May 8.
Goldman Sachs Group Inc. upgraded its rating on Greentown to buy, saying the transaction could help ease concerns about “balance sheet risks” that led to a de-rating of the stock against peers. Greentown is among the 11 Chinese developers with the weakest liquidity, according to Moody’s Investors Service, citing the outcome of stress tests conducted last month, as a government campaign to curb property prices dried up funding.
“The deal was an important step for Greentown to improve its high gearing and cash flow,” said Eric Zhang, a Beijing-based property analyst at China International Capital Corp., the country’s biggest investment bank, who upgraded the stock to accumulate. “But it is just the beginning. Whether the company can achieve that, it has a long way to go, including enhancing its sales performance.”
Greentown’s debt is almost four times its equity, the third highest among 60 of its closest peers in China’s real estate industry, data compiled by Bloomberg showed.
The company based in Hangzhou in eastern Zhejiang province joins Chinese developers selling land and other holdings for cash as government curbs to avoid the formation of an asset bubble weigh on prices. The share sale will give Wharf more access to projects in the country and allow it to rely less on Hong Kong, the world’s most expensive place to buy a home and to rent an office.
Wharf would hold 24.6 percent of Greentown after the stock purchase, and raise that to 35.1 percent should it convert the notes, according to last week’s statement.
Moody’s estimates the 29 developers on its rating list need to repay 159 billion yuan ($25 billion) of short-term debt this year, the most in data going back to 2008, according to a May 23 report. Eleven of the companies face “weak forecasted liquidity,” up from four at the end of December, Moody’s said.
Home prices fell in a record 46 of 70 Chinese cities in April and the People’s Bank of China cut its benchmark interest rates on June 8 for the first time since 2008.
Curbs on the property market will remain and the housing ministry will stop local governments from easing policies to encourage “unreasonable” purchases, the official Xinhua News Agency reported on June 5. There are no plans for stimulus measures on the scale announced in 2008, Xinhua said May 29.
— With assistance by Bonnie Cao