Hong Kong Rights Offers Most in 9 Years as Developers Seek Cash

Hong Kong rights offerings have jumped to a nine-year high, as property developers seek funds from the stock market amid a dearth of credit to the industry from Chinese banks.

Deals proposed this week by underground mall developer Renhe Commercial Holdings Co. and investment firm Mastermind Capital Ltd. brought the number of planned rights offerings this year to 100, the most since at least 2005, according to data compiled by Bloomberg. Hong Kong-listed companies have announced $12.3 billion of such share sales this year, more than double the tally of 2013, the data show.

Chinese developers are seeking cash after their average total debt-to-equity ratio rose to 125.9 percent, from 117.7 percent at the end of last year. Some builders are turning to equity sales, which allow more freedom in the use of proceeds, to avoid increasing their debt levels too much, according to Standard & Poor’s corporate ratings director Christopher Yip.

“These rights issues are concentrated in some specific sectors, particularly property developers,” said Goldman Sachs Group Inc. chief China strategist Kinger Lau. “In the past few years they have been facing pressure from high funding costs and difficulties to raise capital in domestic Chinese markets.”

HSBC Holdings Plc ranks first among advisers on Hong Kong rights offers this year with a 19.6 percent market share, according to data compiled by Bloomberg. Standard Chartered Plc, which makes about three-quarters of its earnings in Asia, is second with 13.6 percent, the data show.

Bond Buyback

Renhe said Nov. 24 it will sell $436 million of shares at a 32 percent discount to fund a bond buyback. It joins hotelier Shangri-La Asia Ltd., insurer PICC Property & Casualty Co. and Hong Kong builder New World Development Co. in seeking funds through rights offerings this year.

Rights offerings give a company’s existing investors the option to buy a set number of new shares at a discount for each share they already own. Holders who opt not to purchase their allotment can sell those rights to other investors.

The deals also show how Hong Kong’s appeal to the financial community has withstood pro-democracy protests that threatened to become the city’s biggest political crisis in decades. Eighty-seven percent of respondents in a Bloomberg Global Poll this month said the democracy movement that blocked major roads and shopping districts for eight weeks hasn’t diverted financial activity away from the city.

Hong Kong’s benchmark Hang Seng Index has risen 2.4 percent this year. Last week, the former British colony and Shanghai opened a stock-trading link that allows a net 23.5 billion yuan ($3.8 billion) of daily cross-border purchases.

Initial public offerings are booming as well, with CGN Power Co. and Dalian Wanda Commercial Properties Co. planning first-time share sales in Hong Kong that could bring proceeds to the highest since 2010.

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