China Vanke Co. (000002), the nation's largest publicly traded developer, plans to sell shares to fund 31 billion yuan ($4 billion) worth of residential projects, accelerating expansion as home sales and stock prices surge.
The company will sell shares equal to as much as 20 percent of the total before the sale, Vanke said in a Shenzhen Stock Exchange statement today. A sale of that size would raise as much as 14.2 billion yuan, based on the company's current market value.
Property prices in Shenzhen, where Vanke made most of its profit last year, surged 9.9 percent in February, almost double the national average. The builder's shares almost tripled in the past year, making share sales a cheaper source of funding as the government raises interest rates and curbs lending.
``Vanke needs cash to sustain fast expansion and earnings growth,'' said Chen Xu, a real estate analyst at KGI Asia Ltd. in Shanghai. ``Profit will probably keep rising in the next several years'' because of demand for new homes.
Vanke's net income jumped 68 percent to 2.3 billion yuan last year on rising housing demand in the world's fastest-growing major economy. Sales surged to 16.9 billion yuan from 9.92 billion yuan. The company raised 4.2 billion yuan in December from a private placement of 400 million shares.
The developer's yuan-currency stock rose 1.2 percent to close at 16.75 yuan in Shenzhen, its highest in more than a month.
The proceeds from the share sale will be used to build homes in the cities of Shanghai, Guangzhou and Hangzhou, Vanke said.
Private Property Law
There will be 70 million new families in China's cities in the next decade, Vanke Chairman Wang Shi said in the company's 2006 annual report.
China's legislature passed a law last week protecting owners of private property. The law, the first of its kind for China since the 1949 communist revolution, will allow people to own and sell assets such as land-use rights for up to 70 years in cities.
Last month's jump in Shenzhen property prices was the largest among 70 major Chinese cities, the National Development and Reform Commission, China's top planning agency, said yesterday. Beijing was second on the list, with a 9.7 percent increase in prices, the commission said. The national average slowed to 5.3 percent from 5.6 percent in January, it said.
The People's Bank of China raised interest rates for the third time in 11 months on March 18, increasing the benchmark one-year lending rate 0.27 percentage point to 6.39 percent. The deposit rate was raised by the same amount to 2.79 percent.
China's economy expanded 10.7 percent last year, the fastest pace in 11 years. Per-capita disposable incomes in Chinese towns and cities increased 12.1 percent in 2006 and rural incomes rose 10.2 percent, according to government data.
China has ordered banks to curb loans to developers, as well as restricted land supply and foreign investment out of concern that surging prices and excessive building will fuel social tensions and lead to oversupply.
Poly Real Estate Group Co., China's third-largest listed developer, and Hong Kong-listed Shanghai Forte Land Co. said this year they plan to sell new shares to finance expansion.
Vanke acquired three companies last year, boosting its building land to 15 million square meters. It has expanded into 28 Chinese cities, compared with about 10 cities entered by Poly and Forte, said Zhang Luan, an analyst at Haitong Securities Co. in Shanghai.
``Vanke will probably acquire more property companies to increase the scale of business,'' Zhang said.
Home sales in China rose 13 percent to 1.7 trillion yuan last year from a year earlier, according to Vanke.
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