By Hu Yuanyuan (China Daily)
Updated: 2008-02-25 12:57

Acquiring local developers is a shortcut for foreign companies to expand into China, especially since the government has raised the threshold for foreign investors wishing to establish real estate companies on the mainland. Now only those who have land-use rights and own property can start real estate firms.

"We are going to take over another eight to 10 projects within a year," says William Zen, chairman of Hong Kong-listed Road King Infrastructure. The company completed its acquisition of a 94.74 percent stake of Beijing-based Sunco Property in August, boosting Road King's land bank on the mainland from 2.9 million sq m to 7.5 million sq m.

Bumpier road

Since getting money from banks and foreign investors is becoming increasingly difficult, it is natural for Chinese real estate firms to turn to the capital market. According to Bloomberg statistics, 13 mainland real estate firms floated shares at Hong Kong and overseas capital markets last year, with 70 percent of them raising 60 billion yuan in Hong Kong.

And, the list for 2008 may be even longer. According to international accounting firm PricewaterhouseCoopers, around 90 Chinese enterprises are expected to float shares in Hong Kong this year, with real estate enterprises and energy companies being the majority.

"There may be more property firms seeking listings in other overseas stock exchanges, but most will still choose Hong Kong, the most convenient capital market," says Chris Brooke, president & CEO of CB Richard Ellis.

Guangzhou-based Evergrande Real Estate Group, Star River, Excellence Group, Beijing-based Sunshine 100 Real Estate, Chongqing-based Lonhu Property and Henan-based Central China Real Estate Group are all reported to be preparing for listings in Hong Kong.

"Without strong capital backup, you can hardly keep pace in the fierce land bidding," says Yi Xiaodi, president of Sunshine 100 Real Estate Group. "But the tougher monetary policy makes it more difficult for enterprises to get bank loans. So developers have to raise money from the capital market."

However, recent stock market reverses and serial measures to squeeze the property sector may mean real estate firms will find the ride to capital markets far bumpier this year.

Changsheng China Property Co Ltd, a mainland commercial developer, said last month that it had decided not to proceed with an initial public offering in Hong Kong because of the current turmoil in the international capital markets and adverse market conditions. The company had planned to raise HK$830 million to HK$1.28 billion by issuing 250 million shares, according to its prospectus.

Evergrande Real Estate Group, a Guangzhou-based residential property developer, also did the same. After receiving a nod from the Hong Kong exchange authorities in January, the company chose to opt out of an IPO roadshow. It still hasn't worked out a listing timetable.

According to Huang Lichong, managing director of Synergy Capital, around half of mainland real estate firms may fail to float shares in Hong Kong as they had planned.

Besides direct IPOs, a number of real estate firms are also striving to enter the capital market by acquiring listed shell companies. "Since the regulator has very strict requirements for direct IPOs, raising money through shell companies has become another handy option," says Li Wenjie, general manager of Centaline China (North China region).

Dalian Jinniu Co Ltd, a Shenzhen-listed steelmaker, last month said in a statement that its 40.67 percent of stakes had been transferred to Zhongnan Group, which will inject the assets of its property arm Zhongnan Real Estate into Dalian Jinniu. If the deal goes through, Dalian Jinniu will turn itself into a real estate company.

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