Country Garden Holdings Co., China's most profitable developer

Country Garden Raises $1.65 Billion in Hong Kong IPO (Update3)

By Bei Hu and John Liu

April 13 (Bloomberg) -- Country Garden Holdings Co., China's most profitable developer, raised HK$12.9 billion ($1.65 billion) in a Hong Kong initial public offering, two people with direct knowledge of the share sale said.

Country Garden sold 2.4 billion shares, equal to a 15 percent stake, at HK$5.38 apiece, said the people who declined to be identified because the details are still private. The sale, at the top end of the range, values Country Garden at about $11 billion in the biggest IPO by a Chinese real estate developer.

The sale underscores investor optimism about China's property market even as the government tries to prevent overheating. Average home prices jumped 12 percent last year in Guangdong, where home sales rose 22 percent annually in the decade through 2005.

``People are really bullish on this company because it has a large land bank, which means the company will have great cash flow and great bottom-line growth,'' said Oscar Choi, a real estate analyst at DBS Vickers Securities Hong Kong Ltd.

Country Garden, based in Foshan in Guangdong province, is raising money to fund projects ranging from apartments to townhouses and villas, as well as to buy more building sites. The province's economy grew 13.8 percent in 2005, compared with 10.4 percent for the nation as a whole.

Morgan Stanley and UBS AG arranged the share sale.

Callis Lau, an external spokeswoman for Country Garden, and Chris Cockerill, a UBS spokesman in Hong Kong, declined to comment. Wayne Fu, a Hong Kong-based spokesman at Morgan Stanley, also declined to comment.

Richest Woman

The sale makes Yang Huiyan, the 25-year-old daughter of company founder and Chairman Yeung Kwok Keung, China's richest woman. Her stake held on behalf of her family is valued at about $6.6 billion, according to Bloomberg News calculations, or almost three times the latest Forbes-estimated wealth of Yan Cheung, chairwoman of manufacturer Nine Dragons Paper (Holdings) Ltd.

Yang, who owned 70 percent of Country Garden before the stock sale, stands to see her ownership diluted to 59.5 percent after the IPO before any sale of extra shares to cover excess demand, the sale document said.

Most Profitable

Five corporate investors bought a combined HK$3.5 billion of shares through the institutional portion of the sale. The investors were controlled by Temasek Holdings Pte., Hong Kong billionaires and developers Lee Shau-kee and Cheng Yu-tung, Citic Pacific Ltd., and the Kuok Group, founded by Robert Kuok, the Malaysian palm-oil-to-hotel billionaire.

Country Garden may post HK$3.9 billion of profit this year, the most for a China developer, Morgan Stanley estimated in a March 16 report obtained from a fund manager. The company was the largest domestic developer by operating income in 2005, according to China's National Bureau of Statistics.

Hong Kong individuals ordered more than 250 times the amount of stock initially reserved for them. A so-called clawback from institutional buyers will double the number of shares offered to them to 480 million, or 20 percent of all initial public offering shares.

International institutions bought the remaining 1.92 billion shares, or 80 percent of the offering.

Land Bank

The company may sell another 360 million shares, or 15 percent of the original size of the offering, to cover the excess demand, lifting the amount raised to HK$14.8 billion.

The IPO values Country Garden at about 21.3 times forecast earnings of 25 Hong Kong cents a share for this year. China Vanke Co., the nation's biggest publicly traded real estate developer, trades at 23.4 times estimated 2007 profit.

Country Garden, which started developing property in 1997, has 27 projects with an average gross floor area close to 900,000 square meters, according to the Morgan Stanley report. About 87 percent of that floor area is in the company's home province of Guangdong, the report said.

China is taking steps to curb property overinvestment as part of a plan to prevent the economy overheating. The government has tightened controls on land use, imposed more property taxes and vowed to more strictly enforce the land appreciation tax. The central bank has also raised interest rates three times in the past year.

Country Garden has about 18 million square meters of land waiting to be developed, which may help boost annual profit 120 percent in 2007 and as much as 70 percent in 2008, Choi of DBS Vickers said.

The stock is scheduled to begin trading on the Hong Kong Stock Exchange on April 20.