Shimao placement to raise HK$1.96b after profit warning
Timing ignites talk firm using good news to reassure market
Peggy Sito and Wong Ka-chun 8 April 2009
Shimao Property Holdings yesterday issued a profit warning just hours before it tried to tap the market for as much as HK$1.96 billion through a new share placement.
The timing of the warning, which came just two days after the company said first-quarter property sales rose 346 per cent quarter on quarter, has raised concerns among some observers. But Shimao denied market speculation the news announcements were carefully timed.
Chief financial officer Lawrence Hui said it was a coincidence that the good news was followed by the bad.
“Our property valuer DTZ sent us the report on the latest valuation of our assets yesterday [Monday]. We issued the profit warning immediately after that,” Mr. Hui said.
Shimao was trying to raise up to HK$1.96 billion by selling 270 million new shares, or 7.6 per cent of its enlarged share capital, in a topped-up placement after the market closed yesterday, sources said.
The mainland developer mandated Morgan Stanley and JP Morgan to handle the transaction and was offering the new shares at HK$6.95 to HK$7.25 each, a sales document sent to fund managers showed.
The offering is at a discount of as much as 9.75 per cent to the stock’s closing price of HK$7.70 yesterday.
The placement is expected to be the largest in Hong Kong in the past two months. The proceeds will be used to repay a syndicated bank loan.
Shares in Shimao have risen 98.45 per cent since March 1. But the stock closed 2.9 per cent lower yesterday after the company disclosed an expected profit decline, partly from a small loss on fair value changes of its investment properties.
The expected profit fall was also caused by a delay in obtaining certifications of completion for a few projects scheduled to be completed last year.
Meanwhile, there was no gain on asset disposal or negative goodwill arising from the acquisition of subsidiaries last year.
On Sunday, Shimao announced that first-quarter revenue rose 346 per cent quarter on quarter to 4.55 billion yuan (HK$5.16 billion).
The developer is expected to report its full-year results from April 20 to 24. The date has not been finalised, according to the company’s spokesman.
Michael Wu, a property analyst at ratings agency Fitch Ratings, said: “I believe this is the company’s careful arrangement aimed at using the good news to dilute the bad news.
“If the bad news came ahead of the good news, it could have a different outcome in the share price movement, as retail investors may only focus on the bottom line, instead of underlying earnings.”
However, the profit warning is not a big concern for rating agencies, as the expected decline has been primarily caused by changes in the valuation of Shimao’s investment properties.
Mr. Wu said ratings agencies did not pay too much attention to such profit warnings. “As long as the company reaps good property sales and gets sufficient cash flow to repay loans, its credit rating will be fine,” he said.
But he said retail investors could take the reports into account.
Shimao said its losses on fair value changes in the group’s investment properties were a non-cash-flow item and would not have a direct impact on the group cash flow.
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Shimao placement to raise HK$1.96b after profit warning
Timing ignites talk firm using good news to reassure market
Peggy Sito and Wong Ka-chun
8 April 2009
Shimao Property Holdings yesterday issued a profit warning just hours before it tried to tap the market for as much as HK$1.96 billion through a new share placement.
The timing of the warning, which came just two days after the company said first-quarter property sales rose 346 per cent quarter on quarter, has raised concerns among some observers. But Shimao denied market speculation the news announcements were carefully timed.
Chief financial officer Lawrence Hui said it was a coincidence that the good news was followed by the bad.
“Our property valuer DTZ sent us the report on the latest valuation of our assets yesterday [Monday]. We issued the profit warning immediately after that,” Mr. Hui said.
Shimao was trying to raise up to HK$1.96 billion by selling 270 million new shares, or 7.6 per cent of its enlarged share capital, in a topped-up placement after the market closed yesterday, sources said.
The mainland developer mandated Morgan Stanley and JP Morgan to handle the transaction and was offering the new shares at HK$6.95 to HK$7.25 each, a sales document sent to fund managers showed.
The offering is at a discount of as much as 9.75 per cent to the stock’s closing price of HK$7.70 yesterday.
The placement is expected to be the largest in Hong Kong in the past two months. The proceeds will be used to repay a syndicated bank loan.
Shares in Shimao have risen 98.45 per cent since March 1. But the stock closed 2.9 per cent lower yesterday after the company disclosed an expected profit decline, partly from a small loss on fair value changes of its investment properties.
The expected profit fall was also caused by a delay in obtaining certifications of completion for a few projects scheduled to be completed last year.
Meanwhile, there was no gain on asset disposal or negative goodwill arising from the acquisition of subsidiaries last year.
On Sunday, Shimao announced that first-quarter revenue rose 346 per cent quarter on quarter to 4.55 billion yuan (HK$5.16 billion).
The developer is expected to report its full-year results from April 20 to 24. The date has not been finalised, according to the company’s spokesman.
Michael Wu, a property analyst at ratings agency Fitch Ratings, said: “I believe this is the company’s careful arrangement aimed at using the good news to dilute the bad news.
“If the bad news came ahead of the good news, it could have a different outcome in the share price movement, as retail investors may only focus on the bottom line, instead of underlying earnings.”
However, the profit warning is not a big concern for rating agencies, as the expected decline has been primarily caused by changes in the valuation of Shimao’s investment properties.
Mr. Wu said ratings agencies did not pay too much attention to such profit warnings. “As long as the company reaps good property sales and gets sufficient cash flow to repay loans, its credit rating will be fine,” he said.
But he said retail investors could take the reports into account.
Shimao said its losses on fair value changes in the group’s investment properties were a non-cash-flow item and would not have a direct impact on the group cash flow.
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