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Vanke's share offer rocks market

(China Daily/Agencies)
Updated: 2009-08-28 08:13

China Vanke Co Ltd, the country's No 2 property developer, plans to raise up to $1.6 billion by selling new shares to fund expansion in a property revival, dealing a blow to the vulnerable stock market.

Vanke joins rivals Gemdale Corp, China Merchants Property and Poly Real Estate Group Co in a rush to raise money after a government stimulus plan and explosive lending revived China's stock and property markets.

"Developers, big or small, are all eager to raise money as the real estate market recovers, so Vanke's share sale plan is not a surprise," said Pan Wei, an analyst at Galaxy Securities Co.

But worries about hefty supplies of new shares have weighed heavily on China's stock market as it struggles to stabilize after a two-week, 20-percent slide earlier this month.

The market has been battered by concerns that valuations have become stretched after this year's heated 90 percent rally, and by signs of tightening market liquidity as China clamps down on bank lending.

"The Vanke plan has investors worried about more possible fundraising, and the pace of IPOs isn't letting up, so confidence is waning in the short term," said Xiangcai Securities analyst Wu Nan.

Vanke's 11.2 billion yuan ($1.64 billion) public share sale, matching the scale of two big IPOs recently approved by regulators, dwarfs the private placements to selected institutional investors by Gemdale and other rivals.

Beijing is keen to bolster housing investment, to take over from spending on infrastructure as a driver of economic recovery. Housing investment rose an annual 11.6 percent in the first seven months of the year.

Related readings:  Vanke profit soars 22.5% in first half  Vanke sales up 50% year-on-year in June  Vanke aims to double market share  Vanke dangles goodies to lure new home buyers

But this poses a dilemma on house prices, as Beijing wants higher prices to encourage development, not speculation.

The rebound in home prices has led some economists to warn of a "false prosperity" in the economy, while stoking worries over bubbling asset prices.

In China's property market, even people with relatively high incomes find it difficult to afford homes.

The housing rebound has boosted property sector earnings, with Vanke posting a 22.5 percent increase in first-half profit this month while raising its 2009 target for housing starts.

Analysts said its bold plan for a share offer was also needed to help push it into the big leagues of developers.

"Despite its leading position in China, it's still too small compared with Hong Kong property giants such as Cheung Kong or Sun Hung Kai in terms of assets," said Fang Yan, an analyst at Guosen Securities Co.

Vanke, with less than 3 percent of China's real estate market, was overtaken as China's biggest listed developer last month when China State Construction Engineering Corp raised $7.3 billion in the world's biggest IPO in a year.

It was reported that Vanke's share sale, if completed, would trim its debt to asset ratio to 60.9 percent, from 66.4 percent as of June 30.

But new offers have added to jitters to the stock market.

Two big IPOs were approved by regulators over the past two weeks: a 6.4 billion yuan offer by China CNR Corp, and a 16.85 billion yuan IPO by Metallurgical Group of China.

Vanke's planned offering needs to be approved by shareholders and the China Securities Regulatory Commission.

It will use 9.2 billion yuan to develop 14 residential projects and 2 billion yuan to replenish working capital.