China Developers Get Share-Sale Approval in Rules Shift
Two Chinese developers received regulatory approval for new-stock sales, the first the government has allowed by real estate companies in about four years, after home sales fell and a developer collapsed.
The China Securities Regulatory Commission said yesterday Tianjin Tianbao Infrastructure Co. (000965) and Join.In Holding Co. (600745) are allowed to sell yuan-denominated A shares in private placements, according to separate statements to Shanghai and Shenzhen stock exchanges. The 142 mainland-listed developers may see an average 3 percent increase in profits this year if the resumption of stock offerings cuts borrowing costs by 1 percentage point, according to estimates by Ping An Securities Co. today.
The approvals came after regulators last year started to accept new share sales applications by developers, prompting optimism that the government will ease fundraising limits as slowing economic growth spurs adjustments to policies aimed at curbing property prices. China’s home sales fell in the first two months of the year as local government property measures weakened buyer sentiment, and the collapse of closely held Zhejiang Xingrun Real Estate Co. under its debt load has prompted declines in property companies’ shares and bonds.
The regulator’s unconditional approvals yesterday “suggest that refinancing formally, unconditionally and fully reopens,” Ping An Securities analysts led by Shenzhen-based Zhou Yating wrote in a report today. The move “is a direct boost to listed companies’ profitability and investment capabilities.”
China hasn’t allowed developers to raise money by selling shares since 2010, when it stepped up efforts to cool the real estate market amid rising home prices, according to Zheshang Securities Co. and Haitong Securities Co. A total of 42 real estate companies have in recent months announced plans for additional share sales to raise a combined 178.5 billion yuan ($28.7 billion), according to Ping An Securities.
A gauge tracking Shanghai-listed property companies rose as much as 1.1 percent. Beijing Capital Development Co. (600376) jumped as much as 7.6 percent, and traded 5.2 percent up at 4.84 yuan in Shanghai trading as of 11:46 a.m. local time. Tianjin Tianbao rose 2.8 percent while Join.In was down 0.4 percent.
China’s new-home price increases slowed in February, led by the four cities the government defines as first tier, amid tighter credit to rein in excessive borrowing and individual city measures to curb property prices, according to data released by the National Bureau of Statistics on March 18.
Tianjin Tianbao said in a September statement that it plans to raise as much as 1.55 billion yuan in a private placement to build a commercial project and two housing projects in Tianjin, the northern city where it’s based.
Join.In said in an August statement that it plans to raise as much as 1.72 billion yuan selling shares to a group of investors to develop serviced apartments, office buildings, commercial properties and supermarkets in Xuzhou in eastern China’s Jiangsu province.
Zhejiang Xingrun, a Chinese real estate developer with 3.5 billion yuan of debt based in the eastern city of Ningbo, has collapsed and its largest shareholder was detained, government officials familiar with the matter said on March 17.
That’s only “one example of many distressed smaller developers” in China, who turned to more expensive financing methods such as trust products after banks raised risk management standards in the past three to four years, Standard & Poor’s Ratings Services wrote in a report March 18.
The failure emerged less than two weeks after the first onshore bond default by a Chinese company. Shanghai Chaori Solar Energy Science & Technology Co.’s missed coupon payment on March 7 may have been China’s “Bear Stearns moment,” prompting investors to reassess credit risks as they did after the U.S. securities firm was rescued in 2008, according to Bank of America Corp.
Short interest in Evergrande Real Estate Group Ltd. (3333), the nation’s fourth-largest developer by market value, was at 8.4 percent of shares outstanding on March 17, up from 3.2 percent a year ago, according to data compiled by Bloomberg and Markit Group Ltd. It touched a record 8.6 percent on March 4. Wagers against Guangzhou R&F Properties Co. (2777) and Agile Property Holdings Ltd. (3383) have both reached the highest since December 2012.
Evergrande’s dollar bonds fell on March 18, sending the yield to 10.86 percent, the highest level on record, DBS Bank Ltd. prices show.
The share-sale approvals came after Greenland Holding Group Co., the Shanghai city government-owned builder of one of China’s tallest towers, said on March 17 that it plans to list on the city’s stock exchange through an asset swap with an affiliate, injecting assets worth 65.5 billion yuan into the unit.
To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at email@example.com