Chinese property developers plan private placements after ban lifted

Chinese property developers including Shanghai-headquartered Shimao Group have announced they will sell shares through private placements after regulators scrapped a decade-old ban on such deals.

The placements come as Beijing seeks to ease the credit crunch that has battered China’s real estate sector over the past year, stalling what was previously an important engine of growth for the world’s second-largest economy.

The China Securities Regulatory Commission announced on Monday it would end a ban on equity fundraising by listed property developers and would allow them to conduct mergers and acquisitions and corporate restructurings.

The new lifeline for cash-strapped developers followed concerted efforts by regulators and state financial institutions to help the struggling sector.

Last week, some of China’s largest lenders said they were ready to pump more than $162bn of credit into developers judged to be stable and to have avoided the worst of the crisis. Earlier this month, regulators agreed a support package that includes extension of a year-end deadline for lenders to cap their ratio of property sector loans. The package has been widely interpreted as a turning point for the industry. 

“Equity financing policies have been tightened since 2010 and nearly all mergers, listing and equity financing activities for developers have been halted since then,” analysts at China International Capital Corporation wrote in a report. 

The analysts wrote that the “milestone move” meant developers would be able to resume normal equity financing with the exception of initial public offerings, and this would help improve their balance sheets and revitalise commercial property projects.

Shimao Group said on Wednesday it would allocate 30 per cent of its share capital to no more than 35 investors in a private placement deal. The funds raised would be used for unfinished housing projects, debt repayment and working capital, it said.

Hubei Fuxing Science and Technology, a developer based in central Hubei Province, said on Wednesday it would also make a private placement. Three other smaller listed property developers announced similar plans.

Shanghai-listed shares in Shimao and Hubei Fuxing both surged by the daily limit of 10 per cent on Wednesday, while the benchmark Shanghai Composite index edged up less than 0.1 per cent.

Some investment bankers and developers were surprised to see the securities commission reverse restrictions on developers it had imposed for more than a decade.

One Shanghai-based investment banker said colleagues had almost forgotten the details of how to arrange private placements for listed developers. “We have to reach out to our developer clients on how to push forward this equity financing business,” the banker said.