China-based Franshion Properties plans to sell shares worth HK$2.72 billion (US$349 million) by way of a rights issue.
The Hong Kong-listed real estate developer of Sinochem was the latest issuer to utilise the rights issue option, which allows a company to raise funds and avoid fluctuations in interest rates – unlike with bank loans or debt sales
The shares will be sold to raise funds for the recent acquisition of China Jin Mao from parent Sinochem. The deal was completed earlier this year and involved a deferred payment.
A Latham & Watkins corporate team led by partner Cathy Yeung worked with Franshion Properties’ Beijing-based head of legal Gai Jianggao on the issue. Yeung also worked on the Jin Mao acquisition as well as Franshion Properties’ US$424 million IPO in August 2007, but with previous firm Allen & Overy.
Deutsche Bank acted as financial adviser on the rights issue and this followed its role on Franshion Properties’ IPO, which at the time was the largest IPO from a pure commercial real estate developer in China.
In addition to IPOs, PRC property developers have also used the strength of their equity to benefit greatly from convertible bond issuances over the last few years. However, Yeung said there are not many deals anymore.
“It’s tough right now. Given the market conditions, people are having to think up ways of raising funds.”
A company can opt for a rights issue to raise capital under a secondary market offering of shares. With the issued rights, existing shareholders have the privilege to buy a specified number of new shares from the firm at a specified price within a specified time.
Rights issues are not complicated to structure, and there are quite a few happening in places like Indonesia and Singapore – with the latter recently adopting a shorter timeframe.
At a recent breakfast seminar organised by sister publications Asialaw and IFLR, UBS managing director and head of legal Duncan Bell told the audience that the focus of his firm’s investment banking unit was on plain vanilla rights issues at the moment.
“We have no visibility on capital markets at the moment, so it’s back to basics,” he said. “Our wealth management team hears from investors that they want no risk at the moment, so there’s a move away from structured back to plain vanilla.”
Franshion Properties’ developments include Jinmao Tower and Shanghai World Financial Centre. PRC state-controlled conglomerate Sinochem conducts businesses across sectors such as chemicals, crude oil, fuel oil and natural rubber futures, as well as hotel and real estate development and operation.