Enthusiasm by domestic real estate firms for raising capital on the Hong Kong stock exchange may be cooled by an unwritten rule from China's securities regulator.

The underlying rule, set by the China Securities Regulatory Commission (CSRC), allows mainland-incorporated companies to list overseas only if they seek to raise over $1 billion, an amount that can hardly be met by middle-sized firms.

According to CSRC spokesman Liu Fuhua, the regulator doesn't have such a rule on paper, but it is encouraging more companies to list in Shanghai and Shenzhen.

Among enterprises that are itching to float shares in Hong Kong this year, real estate firms have more pressing demands due to increasing capital needs brought on by economic policy restraints and soaring land costs.

More than 10 Chinese property developers are currently queuing to list in the Hong Kong exchange. But if the unwritten rule is applied, the waiting list could be shorter.

Only Country Garden qualifies to meet the new threshold. In April the South China real estate firm raised $1.66 billion in the biggest-ever initial public offering (IPO) by a Chinese property developer. Other companies are more likely to raise 3 billion yuan to 4 billion yuan, lower than the $1 billion requirement. They may be asked to launch their IPOs in the Shanghai or Shenzhen exchanges.

Yet the road to listing on the mainland may be even bumpier for property developers, especially with the government's intensive measures to cool down the sector.

Glory Real Estate, a Beijing-based property developer, has had mulled a listing plan on a mainland bourse in 2005 but later turned its eyes to Hong Kong.

"There is a certain quota, usually meaning very few, on how many real estate firms could be listed within a year," Wu Bin, marketing director of the company, tells China Business Weekly.

Statistics show that only one real estate firm, Huafa Industrial, successfully floated shares in the Shanghai exchange in 2004. Last year, only Poly Real Estate Group Co Ltd and Beijing North Star Co Ltd made their debuts in Shanghai. This year, just Zhejiang Guangyu Real Estate Co has received a license to float A shares.

"The overall market environment makes it even more difficult for private property developers to float A shares," Wu says. "So we began to work on a listing plan for the Hong Kong exchange late last year."

Due to spiraling property prices across the country, the government has taken a range of measures to restrain the sector, including a more stringent policy on bank financing. Efforts include increasing the capital threshold for developing new projects and prohibiting the granting of mortgages before completion of a project's main building.

Although Glory Real Estate was striving to finish its listing this year, the plan has to now be delayed until next year.

"The postponement has nothing to do with the CSRC's unwritten rule," Wu says. "It is mainly due to time-consuming preparation work for the listing, especially the financial auditing."

Thus far none of the property firms are known to be barred from the Hong Kong exchange because of the rule, an industry analyst says, but the blow could be delivered in 2008.

SOHO China, a Beijing-based developer, submitted its listing application to the Hong Kong exchange last month, an insider with the company tells China Business Weekly.

"Everything is moving on smoothly, and SOHO China could make its debut in Hong Kong in July," the insider says, adding the rule doesn't affect the company's listing procedure. SOHO China is expected to raise around HK$3.2 billion ($405 million).

Meanwhile, Sino-Ocean Real Estate Development Co (SORED), incorporated by the two multinational shipping companies China Ocean Shipping (Group) Co (COSCO) and Sinochem Corp, is also expected to make its debut on the Hong Kong exchange by the end of this year, raising HK$3 billion to HK$4 billion, sources said.

According to Huang Lichong, managing director of Synergy Capital, the rule may be applied selectively.

"The CSRC may persuade quality enterprises to float A shares first but keep another eye shut for common firms," Huang was quoted by China Business News as saying.

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