Developers raising funds for land acquisition
Updated: 2009-10-10 08:30
By George Ng(HK Edition)
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HONG KONG: Mainland-based property developers are beefing up their financial resources by selling new shares as they step up the pace to build up their land bank, in anticipation of another boom in the real estate market.
New World China Land Limited, the mainland arm of New World Development Ltd, is raising more than $600 million (HK$4.67 billion) through a right issue, market sources said Friday.
Another mainland-based developer, Sinolink Worldwide Holdings Limited, is raising as much as HK$563 million fresh capital from the market by selling 290 million new shares, sources said.
Details of the share sales were not available as of Friday evening, but Sinolink Worldwide confirmed in a filing with the stock exchange that it was in the process of placing some new shares, and requested trading suspension of its shares.
New World China, meanwhile, also requested trading suspension Friday afternoon, pending the release of "price sensitive" information.
Analysts generally believe that the developers are raising money to beef up their land bank rather than to reduce debt levels.
"Mainland developers have reduced their financial leverage from last year's high levels as the credit market has significantly eased, while property sales rebounded robustly this year," said Danielle Wang, an analyst at Taifook Securities Ltd, who covers the mainland property sector.
The central government implemented some austerity measures in 2007 to cool down the then overheated mainland property market, dampening the real estate market and causing a slump in property sales the following year.
This, together with a tightened credit market after the onset of the economic retreat, caused significant liquidity stress to many mainland developers last year.
However, with a strong rebound in the mainland property market this year and a significantly eased credit environment after the central government's 4 trillion yuan stimulus package, developers' liquidity levels have greatly improved.
"With improved leverage, the fresh fund being raised will more likely be used to acquire land," Taifook's Wang said.
This is more so in the case of Sinolink Worldwide, she suggested.
"Sinolink has basically completed the development of its existing projects and is in the process of launching those projects," she said.
Since land prices have risen significantly on the mainland,higher land costs are forcing developers to raise more cash, the analyst added.
Patrick Yiu, Associate Director of CASH Asset Management Limited, agreed with Wang's points, saying that both developers have comfortable debt level.
"They will probably try to build up their land bank as the medium-term prospect for the mainland property market is bright, given that housing demand will definitely continue to grow as the economy grows," he said, noting that even some central government-controlled enterprises are snatching up prime land in tier-one cities.
(HK Edition 10/10/2009 page2)