Vanke Jumps in Hong Kong Debut as Developer Seen Resilient

China Vanke Co. jumped 7 percent on its Hong Kong trading debut as investors bet the developer’s focus on small to medium-sized homes is resilient in a slowing Chinese property market.

Vanke, the country’s biggest developer, converted its China-listed B shares to H shares, as the shares of companies incorporated in China and traded on the Hong Kong bourse are known. The H shares opened at HK$13.66, compared with their B shares’ closing price of HK$12.41 on June 3 on the Shenzhen stock exchange. They were at HK$13.28 at the close of trading Hong Kong. The benchmark Hang Seng Index fell 0.1 percent.

The developer joined China International Marine Containers Group Co. that has exited the B-share market, which has languished after the nation opened its local-currency stock markets to foreign investors. The conversion will widen Vanke’s access to global investors, giving it entry to an exchange where the daily trading value is more than 100 times higher than in the B-share markets.

“Safer names have been our preference since we turned bearish on China property sector in October 2013,” Jinsong Du, a property analyst at Credit Suisse Group AG in Hong Kong, wrote in a note to clients today. “Vanke-H’s listing has created another blue chip choice in China property sector.” Credit Suisse initiated coverage of Vanke with an outperform rating.

Vanke’s yuan-denominated A shares rose 0.5 percent to 8.13 yuan in Shenzhen. Vanke Property (Overseas) Ltd., the developer’s Hong Kong unit, declined 1.7 percent to HK$8.65 in Hong Kong trading.

Sales Target

Vanke’s May sales rose 2.7 percent to 14.5 billion yuan ($2.3 billion), while volumes were little changed at 1.23 million square meters (13 million square feet). Five-month sales reached 81.5 billion yuan, meaning the company is on track to reach a 200 billion yuan full-year target, according to Bloomberg Industries property analyst Robert Fong.

“Their so-called quick turnover business model is pretty straight forward as it operates quickly in terms of land acquisition, sales and booking profits,” said Edison Bian, a Hong Kong-based property analyst at UOB Kay Hian Ltd., before the H shares began trading. “Its entry into other businesses, such as e-commerce and shopping malls, is ahead of peers.”

Founded in 1984, the company has developments in 53 Chinese cities, according to its website.

Silver Age

B-share markets, where foreign institutions and Chinese individuals are allowed to trade, were set up in 1992 to give local companies a way to raise funds from global investors banned from buying securities denominated in yuan. Interest in B shares has waned as the government allowed qualified overseas investors to access the larger, more liquid A-share market and eased limits on foreign exchange.

The average daily trading of B shares in Shenzhen and Shanghai, China’s two biggest stock markets, was 246.5 million yuan in the last three months, compared with $6 billion for Hong Kong, according to data compiled by Bloomberg.

“As an international brand on an international platform, we can fundraise here,” Vanke Chairman Wang Shi told reporters today, citing issuing bonds in Hong Kong at cheaper costs as an example. “After all, many international strategic investors are limited to buying stakes in Hong Kong, and are restricted in the mainland. Listing in Hong Kong opens this window, allowing these international investors to directly invest.”

Vanke is in talks with some potential strategic investors, Wang said, declining to name them or give details. The developer has no fundraising plans at the moment, he said.

The “golden era” for China’s property market, a period in which everybody made money, has passed, Wang said.

“Now is the so-called silver age, which is not as easy to make money,” he said.

China’s new-home prices last month fell from a year earlier in half the cities tracked by the government for the first time in two years as a slowing economy and excess supply deterred buyers.

— With assistance by Bonnie Cao

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