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Realty firms ready to board IPO train
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After China State Construction Engineering Corp, the nation's largest housing contractor, successfully raised 50.16 billion yuan in the world's biggest initial public offering (IPO) in 16 months, many Chinese real estate companies are trying to stick their hands in stock investors' pockets for money to expand business, or more specifically, to buy more land.

According to an initial estimate by China Economic Weekly, more than 30 property developers in China have lined up plans for public floats in the mainland's A-share market and Hong Kong's H-share market.

Wuhan Langold Real Estate got regulatory approval on Friday for its public float and became the first real estate company to go public after the securities regulator lifted the ban on initial public offerings.

Applications of four more real estate companies are also awaiting regulatory approval, said the report on China Economic Weekly yesterday.

Most of the companies have said they would utilize the funds raised for acquiring more land, the report said.

"This is nothing new as that is what property developers normally do," Ding Wen, analyst, China Galaxy Securities Co, said without elaborating.

China Vanke, the country's largest property developer by market value, has also signaled its intention to look for equity financing this year.

Xiao Li, vice-president of Vanke, last week said: "We are actively exploring the possibility of refinancing." Vanke had raised 25 billion yuan in nine refinancing activities in the past 21 years.

The company expanded its land reserves by large margins from May to July and bought 19 pieces of land, with a total area of 4.5 million sq meters.

However, the policymakers might not be happy about how they are making use of investors' money.

"The securities regulator is in support of good real estate firms seeking funds through IPOs for expansion," the report said, citing an unnamed source familiar with the regulator.

It added that the regulator might not allow the firms to use the funds for stockpiling land, as it's not healthy for the stability of China's property market.

"The securities regulator will be more strict in the subsequent IPO approvals," the source said.

Feverish land purchases among property developers have driven land prices to record highs even in some second-tier cities. That in turn would push up housing prices eventually and thus result in more complaints from people who cannot afford to buy apartments.

According to Ren Zhiqiang, head of a realty firm, his company finds it difficult to match up with the cash-flush State-owned realty developers in getting access to cheap bank loans.

"The State-owned companies can borrow at a low interest rate of 3 percent, while private firms have to pay a much higher rate of 5 to 6 percent," Ren said.

Jerry Lou, Hong Kong-based China strategist for Morgan Stanley, recently suggested that stock market investors should avoid sectors which are sensitive to monetary and fiscal policy, such as property, because they are exposed to policy uncertainties.

The real estate sector, according to Lou, was the early beneficiaries of the stimulus-driven economic recovery.

Property stocks, which have gained 142 percent this year, are the best-performing group on the benchmark Shanghai Composite Index.

(China Daily August 11, 2009)

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