Evergrande Raises $593 Million in Offer Priced Below Range

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Evergrande Real Estate Group Ltd., China’s third-biggest developer by assets, raised net proceeds of HK$4.6 billion ($593 million) after selling shares below a marketed price range.

The shares dropped 16 percent, the most in almost a year, in Hong Kong pre-market trading.

The company sold 820 million shares at HK$5.67 each, an 18 percent discount to its last closing price, according to a statement to the Hong Kong stock exchange Friday. Evergrande, based in the southern Chinese city of Guangzhou, had offered 747.6 million shares at HK$6.22 to HK$6.36 apiece, terms for the deal obtained by Bloomberg showed Thursday.

Evergrande is seeking to refinance borrowings by taking advantage of a stock rally that’s seen its share price double in the past three months. Its total debt more than tripled over the past three years to $25 billion at the end of December, data compiled by Bloomberg show.

“It’s a surprise the price discount is steeper,” said Alvin Wong, a Hong Kong-based analyst at Barclays Plc. “But the proceeds won’t help improve their operating cash flow much as debt is really too high.”

The developer’s fundraising comes as Chinese shares slid Thursday for the first time in eight days after brokerages curbed margin lending. The Shanghai Composite Index slumped 6.5 percent, ending a 15 percent rally.

Citic CLSA Securities, Credit Suisse Group AG, Haitong Securities Co. and Jefferies Group LLC arranged the sale.

No Buyers

Hong Kong share placements rarely price below the marketed range that investors are approached with. Evergrande cut the price of the offering and increased the number of shares to ensure it raised at least $600 million before fees, people with knowledge of the matter said, asking not to be identified as the information is private.

After the drop in the Shanghai market Thursday, the sale arrangers couldn’t find enough investors to buy all the shares in the original deal even at the bottom of the price range, the people said. An Evergrande spokeswoman couldn’t immediately comment on demand for offered shares.

The company has one of the lowest analyst rankings among Hong Kong-traded developers worth at least $5 billion, according to data compiled by Bloomberg. At least three brokerages, including Goldman Sachs Group Inc. and China International Capital Corp., have cut their recommendations for Evergrande this month, pointing to its high debt obligations.

The firm’s net debt is almost triple its common equity if perpetual equity instruments are treated as debt, according to data compiled by Bloomberg.

CICC said the HK$4.6 billion raised is too small to make a difference to its financials. Evergrande has 156 billion yuan of borrowings and 53 billion yuan of perpetuals, according to CICC.

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