Property giants to seek funds overseas
By Liu Jie (China Daily)
Updated: 2004-03-15 11:16

China's real estate conglomerates are hunting for overseas and domestic capital in the wake of a central bank directive that restricts commercial banks' loans to the overheated sector.

The central People's Bank of China's ruling earlier this year also included an increased lending threshold, in an attempt to avoid lending risks.

In a circular published on January 27, China Overseas Land and Investment Ltd said it would offer 850 million H shares in Hong Kong to raise 1.5 billion yuan (US$180 million) for its huge residential project in Shanghai's Luwan District.

The total investment for the project, expected to be finished by 2012, will be 6 billion yuan (US$722 million). Two-thirds of the money will be used for the first stage of development and the rest will pay for land.

China Overseas Land and Investment, an arm of China Estate Construction ENGRG Corp, China's top construction enterprises group, was the first mainland property firm listed on the Hong Kong Exchange.

So far, China Overseas Land and Investment has raised over HK$29.5 billion (US$3.78 billion) and held more than HK$60 billion (US$7.69 billion) in assets.

On February 3, Hong Kong-listed Beijing Capital Land Ltd, a leading real estate developer in Beijing, announced it was planning to return to the mainland capital market by issuing up to 1.2 billion A shares on the Shanghai Stock Exchange.

The company's spokeswomen said Beijing Capital Land would apply to issue yuan-denominated A shares to raise approximately 3 billion yuan (US$362 million) to develop projects on the mainland.

The proceeds will be used in the construction and development of a commercial centre in the national capital, and an office and residential complex in its downtown core.

The two projects will cover a construction area of 635,500 square metres and are expected to cost 3.9 billion yuan (US$471 million).

The company will also use some of its A-share proceeds to purchase several other real estate projects.

But the exact timetable for the listing is yet to be decided.

And the final issuing size and price will depend on the market environment, the company's circular said.

Reliable sources revealed that Greenland Group, Shanghai's largest real estate developer, is busy preparing for a Hong Kong listing.

Xu Nianrong, a senior analyst at the Huatai Securities Research Institute, said the move is the result of the decision to adopt constrictive measures on real estate lending to prevent excessive investment and high lending risks, which lead to high bad loan rates.

"In the capital-intensive sector, property developers have to explore new channels to meet the huge fund demands after losing their robust support from commercial banks," Xu said.

Some property magnates tasted success during the first listing upsurge in 2001, which was led by the central government's decision to cancel a six-year restriction from 1993, on the listing of real estate developers.

Beijing Tianhong Baoye, Tianjin Real Estate and Golden Field have raised 400 million yuan (US$48.19 million), 538 million yuan (US$64.82 million) and 829 billion yuan (US$99.88 million), respectively, since listing on the Shanghai and Shenzhen yuan-dominated A-share markets.

The companies took full use of the fund to enrich their land reserves, which brought in a lot of money, said Ding Wen, a real estate analyst with China Galaxy Securities Co.

"The directive by the central government is an effort to steer clear of the investment bubble," Ding said.

But some economists and insiders are worried that the bank's move could hurt an important engine of economic growth, which has been fostered since 1998.

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