Small and Midsize Developers Seek Lifeline in HK Equity Market

iFeng: 多家中小房企寻求香港上市 “各类融资渠道成本都在上升”

The developers of high-strength relying on funds have increasingly tightened their financing channels. Many small and medium-sized developers have begun to look to overseas capital markets and want to list their companies in Hong Kong for financing. On April 26, the Hong Kong Stock Exchange disclosed the Shanghai Dafa Group’s prospectus. As of February 28, the company had a total land bank area of ​​1.72 million square meters, including a total saleable floor area of ​​134,300 square meters. And the total building area available for rent is 68,400 square meters. Business operations include property development and sales, commercial property investment, and operations and property management services.

Dafa Real Estate stated that the revenue mainly comes from the sale of properties. The financial data from 2015 to 2017 showed that the company’s sales revenue was 603 million yuan, 575 million yuan and 4.32 billion yuan respectively. As of the end of 2017, the company's cash and cash equivalents were 377 million yuan. The prospectus mentioned that during the three-year period from 2015 to 2017, the company recorded negative net operating cash flow, and may not be able to obtain sufficient funds (irrespective of bank loans, trust financing, or other arrangements) for land acquisitions on commercially reasonable terms. And in future property development, or simply unable to obtain the necessary funds. Dafa Group stated that the company’s property development projects are generally financed through cash generated from operations, bank loans and trust financing. The company is expected to continue to adopt the above methods and seek other financing opportunities to fund the project.

However, Daihatsu Group also mentioned that the company cannot guarantee that it will have sufficient funds, nor can it guarantee that it can obtain additional financing on reasonable commercial terms, or even fail to obtain additional financing. At present, the company's net operating cash flow is negative, mainly due to the time-consuming property development and the need for large amounts of capital, as well as the company's land acquisition and business expansion. Companies may need to significantly increase external borrowing or obtain other external financing. Dafa Real Estate CEO Liao Lujiang once said that Dafa Real Estate planned to hit 100 billion in 2018, and put forward a goal of achieving 300 billion yuan in five years, as well as project follow-up and profit sharing mechanisms.

In addition, another real estate company, Xinli Real Estate, is also planning to go public in Hong Kong. The data shows that the company's sales in 2017 exceeded 40 billion yuan, and the current value of land reserve was 231.4 billion yuan. On May 31, Midea, a real estate platform owned by Midea Group, submitted a prospectus on HKEx. According to the relevant information disclosed in the prospectus, Midea's main businesses include property development and sales, property management services, and investment in commercial real estate. The listing in Hong Kong is to further expand the scale of the industry, and the company will use the funds for general operations and smart home solutions. According to the financial data of Midea Real Estate, the company’s authorized share capital increased to HK$2 billion and the shares were divided into 2 billion shares at HK$1 each. From 2015 to 2017, U.S. real estate revenue was 8.313 billion yuan, 11.992 billion yuan, and 17.717 billion yuan respectively. According to the company's disclosed balance sheet data, the company's total assets in 2017 were 112.798 billion yuan, the total liabilities were 18.88 billion yuan, and the asset-liability ratio was about 89%. As of March 31, Midea Property has 39 projects in the Yangtze River Delta with a land reserve of 8.4 million square meters. By the end of 2018, it is expected that most of the pre-sale residential development projects will be equipped with smart home solutions. Midea Real Estate stated that the company may enter the assembly industry and the first prefabricated construction plant will be put into operation in Xuzhou by June 2020. Nowadays, under the financial background of deregulation by regulators, the regulation of domestic property market and the tightening of financing have become the consensus of the capital market. The financing costs of housing companies through the issuance of bonds are also rising. People in the financial industry (www.thepaper.cn) said that the future financing of housing companies will become increasingly difficult. This year's financing costs have risen compared to 2017, but even so, many housing companies are still Will rush to. "Now that money is getting harder and harder to get, so housing companies also rely on themselves, either to issue bonds, or to borrow overseas. Already listed companies can also use equity distribution, but the cost of these financing channels is also rising." "Although this is the case, as long as it is still within the scope of the developer's ability, it is possible to get the money." Wind data shows that since May, a total of 16 real estate bonds have been issued, with coupon rates More than 7% have 9. At the same time, real estate companies also have stricter supervision over the issue of bonds in the bond market. Since the end of May, Hopson Development (00754.HK), R&F Properties (02777.HK) and Country Garden (2007.HK)