New mix of property and stock catches on

By Jin Jing (China Daily)
Updated: 2007-09-05 10:30

Real estate asset securitization has become the rage as the Chinese stock market continues to scale new heights.

"Real estate developers are rushing to inject property assets into their listed companies to cash in on the stock market boom," said Zhang Luan, a senior analyst at Haitong Securities.

These deals, amounting to hundreds of billions of yuan, have greatly increased the supply of scrips to satisfy the seeming insatiable demand of investors. But the uneven standard of property valuation could create new risks as the real estate markets, especially those in the major cities, are seen to be overheating.

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From this year, a total of 35 real estate companies listed on the Shanghai and Shenzhen exchanges have won approval from the China Securities Regulatory Commission to issue new shares, accounting for over 40 percent of all listed A-share real estate companies.

The total capital raised from new share issues amounted to 94.16 billion yuan (US$12.47 billion) till August, according to statistics compiled by China Securities News.

The latest deal was by Shanghai Industrial Development Co Ltd, directly owned by the State-owned Assets Supervision and Administration Commission of Shanghai Municipal Government. It signed a contract with its parent company Shanghai Industrial Investment (Holdings) Co Ltd and its holding subsidiary on August 13 to sell 160 million shares at 22.81 yuan apiece to buy shares in real estate companies and land.

Besides, Shanghai ShiMao Co Ltd announced on June 7 that it would issue around 700 million shares to buy 12 commercial real estate projects from its parent and holding companies.

Beijing Tianhong Baoye Real Estate Co Ltd said on August 21 that it will issue 550 million shares to buy 12 main assets of Beijing Capital Development Holding (Group) Co Ltd, Beijing's largest real estate developer.

An analyst at an investment consultancy said real estate companies inject the land, appreciating rapidly, into the listed entities to get a much higher premium.

"They raise the money in the property market and then inject it into the securities market to bump up stock prices. This has become regular, and the risk is beginning to transfer from the property market to the securities market," he said.

"Listed real estate companies are more willing to raise money from the securities market, where they can have a higher premium," said Zhang Luan at Haitong Securities.

(For more biz stories, please visit Industry Updates)

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