China Evergrande Group and its property management arm hope to raise as much as HK$15.8 billion ($2.04 billion) in a Hong Kong spinoff of the unit, Evergrande Property Services Group Ltd. said in a statement to the Hong Kong exchange Monday.
The sale of 1.62 billion shares is made up of 50% new stock and 50% sale shares. The price range has been set at HK$8.50 to HK$9.75 each. There is a 15% overallotment option, the filing said.
The in-debt Shenzhen company said 23 cornerstone investors had agreed to buy 789.5 million shares - or about 7% of Evergrande Property Services after the deal.
They include SenseTime Group, a subsidiary of China Gas Holdings Ltd., and China Merchant Buyout Fund, according to a term sheet seen by Bloomberg News. Hong Kong retail investors have been allocated a 10% tranche and will have access to shares from Monday.
Evergrande will spend the proceeds to reduce its $120 billion in debt. Evergrande owns 72% of Evergrande Property Services, according to the HKEx filing Monday.
Final pricing is expected Nov. 26. Shares are set to begin trading Dec. 2.
For the six months to the end of June this year, Evergrande Property Services' net profit was 1.15 billion yuan (US$180 million) - more than double the 407.3 million yuan it made in the same period a year ago.
Meanwhile, this past weekend two Guangdong provincial government-backed companies said they would help China Evergrande Group after a strategic investor said it wanted to exit its investment, according to people familiar with the matter.
Companies owned by the city governments of Shenzhen and Guangzhou will buy 30 billion yuan in shares from existing investors in Hengda Real Estate, the unidentified sources said.
The buyers are Shenzhen Talents Housing Group Co. and Guangzhou City Investment Company Ltd., while the sellers include a consortium led by Shandong Hi-Speed Group Co., Hengda's largest strategic investor, the sources said.
But this will put only a small dent in the developer's total debt, which stands at more than $120 billion according to a September interim report.
Evergrande's situation has prompted mainland officials to take a harder line against debt amongst national property companies. In October authorities unveiled the 'Three Red Lines' policy, which will judge developers looking to refinance against three thresholds.
These include a cash to short-term borrowing ratio of at least one and a 70% ceiling on liabilities to assets. In addition, there will be a 100% cap on net debt to equity.
In August, Evergrande raised $3 billion by selling a stake in its property management arm to investors including Tencent Holdings Ltd. Companies linked to Citic Capital Holdings, the wife of billionaire mogul Joseph Lau and the family investment arm of New World Development Co. billionaire Henry Cheng, are also among the pre-initial public offering investors, Bloomberg News and others reported.