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Evergrande Slumps on $560 Million Share Sale: Hong Kong Mover

Evergrande Slumps on $560 Million Share Sale
View of a stand of Evergrande Real Estate Group Ltd. during a property fair in Beijing on Dec. 4, 2009. Evergrande targets sales this year of 100 billion yuan, 25 percent higher than the target in 2012, it announced in a stock exchange statement this week. Source: Imaginechina

Evergrande Real Estate Group Ltd., China’s biggest developer by sales volume, fell by the most in five months in Hong Kong trading after it announced a share placement.

The stock declined 7.1 percent to HK$4.32 at the close of trading, the biggest drop since Aug. 15. The company is seeking to place 1 billion shares at HK$4.35 each. The developer will use the HK$4.35 billion ($560 Million) raised to repay debt and for working capital, it said in a statement to Hong Kong stock exchange today.

“Investors’ reaction is a one off as the placement improves the company’s balance sheet,” said Alan Jin, a Hong Kong-based property analyst at Mizuho Securities Asia Ltd. by phone today. “The placement probably is the best way for Evergrande to raise funds as it aims to improve its gearing.”

Chinese developers are seeking financing for more sites as the land market recovers. China’s Ministry of Land and Resources said this week that it expected the country’s urban land prices to rise “moderately” this year. Shanghai sold the year’s most expensive plot for 5.4 billion yuan last month.

KWG Property Holding Ltd., the Hong Kong-listed developer whose projects include the five-star Sheraton Huadu Resort in Guangzhou, is offering perpetual notes that yield about 10.25 percent, a person familiar with the matter said this week. The company is the second Chinese developer to sell perpetual bonds this year after Agile Property Holdings Ltd. raised $700 million from a sale of 8.25 percent notes last week, according to data compiled by Bloomberg.

Fund raising helps improve the balance sheet and provides more funding for land acquisitions, wrote David Ng, a Hong Kong-based property analyst at Macquarie Securities Ltd., in a note today.

The gross proceeds raised should help improve Evergrande’s net gearing by 9 percentage points, while its latest net gearing for December is expected to be 75 percent, according to Ng.

Evergrande targets sales this year of 100 billion yuan, 25 percent higher than the target in 2012, it announced in a stock exchange statement this week.

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