News Alert: share placement for offshore debt repayment
- Country Garden announced a share placement to sell 870m shares at 12.6% discount to last closing price for US$362m of capital
- Proceeds raised from the placement is expected to be used for offshore bond repayments and working capital purposes
- We believe this may help to temporarily relieve the company’s liquidity pressure, but share price will likely remain suppressed in the near term
- Rating and TP are currently under review
Country Garden (2007 HK, under review) announced a share placement this morning to sell 870m shares at HK$3.25/sh (12.6% to last closing price) to raise c.US$362m for capital to repay offshore bonds and as working capital.
A temporary sigh of relief over near-term liquidity pressure… Upon the ongoing property sector turbulence and COVID-19 resurgence, Country Garden, like other of its peers, have taken a hard hit in presales (1H22 presales -39% y-o-y). Control on presales proceeds held under escrow account (particularly for lower tier cities) also showed limited signs of relaxation. These, together with a largely shut refinancing channel, have posed unneglectable liquidity pressure on surviving names like Country Garden. There has also been rumours relating the company putting up its hotel assets for sale. These have ignited market concerns over the developer’s liquidity condition, even though the company only have in total c.Rmb4bn of onshore bonds puttable in Sep and Nov, and no public offshore bonds due for the rest of 2022. The US$362m proceed from the share placement could be of help for the company and may potentially serve as a sign of comfort for the market (particularly for bond investors) in terms of the developer’s near-term liquidity position.
…but share price will likely remain pressured. The placement would create c.4% dilution and is priced at a deep discount of c.12.6% to its last closing price, which is near the company’s 5-year low level albeit after a decent run so far into this week. We also believe a certain amount of participants of the deal are possibly coming in for short covering purposes (total outstanding short position on Country Garden as at 15-July stood at c.981m shares). While the potential utilization of the proceed on offshore bond repayments could create some one-off gains (as the company’s bonds are trading at well below par), we believe equity investors will likely remain cautious on the name, and share price performance of the company will likely remain suppressed in the near term.