Evergrande Stock Sinks After Selling Shares Below Range

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Evergrande Real Estate Billionaire Chairman Hui Ka Yan
Evergrande Real Estate Group Ltd. Billionaire Chairman Hui Ka Yan. Photographer: Jerome Favre/Bloomberg

Evergrande Real Estate Group Ltd. plunged the most since it went public in 2009 after being forced to cut the price of a share sale that analysts said will do little to reduce the company’s indebtedness.

Evergrande raised HK$4.6 billion ($593 million) of net proceeds selling shares at HK$5.67 each, a statement to the Hong Kong stock exchange Friday showed. The price represents an 18 percent discount to Evergrande’s last close, compared with the 8 percent to 10 percent discount marketed by its arranging banks on Thursday.

Hong Kong share placements rarely price below the marketed range that investors are approached with. While Evergrande managed to raise the $600 million it originally sought by selling additional shares, the proceeds are seen by analysts as having little impact on easing its debt load.

“The new equity will hardly move the dial on its credit metrics.” Charles Macgregor, head of Asia at Lucror Analytics, wrote in a research note Friday.

Evergrande shares tumbled 27 percent to HK$5.05 at the close in Hong Kong, the biggest decline since the company began trading in November 2009. The share price doubled in the past three months before the plunge.

Dividend Payout

The developer, based in the southern Chinese city of Guangzhou, had originally offered 747.6 million shares at HK$6.22 to HK$6.36 apiece, terms for the deal obtained by Bloomberg showed Thursday.

“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 proceeds raised are less than the 6.27 billion yuan ($1 billion) in final dividends declared for 2014, to be paid by July. That payout size, which represented a 14 percent yield on its stock, is unlikely to continue this year, JPMorgan Chase & Co. said in a March report. Billionaire chairman Hui Ka Yan owns almost 69 percent of Evergrande, data compiled by Bloomberg show.

The developer’s fundraising comes after 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.

Weak Demand

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, people familiar with the matter said. Evergrande declined to comment on demand for the offered shares.

Evergrande is the most indebted among 20 major Chinese developers tracked by Bloomberg Intelligence. The firm’s leverage will remain high after the share sale, with net debt dropping to 240 percent of common equity from 271 percent, when treating perpetual securities as debt, according to Bloomberg Intelligence analyst Robert Fong.

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., China International Capital Corp. and Macquarie Group Ltd., have cut the stock to the equivalent of ‘‘sell” this month.

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

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