Property Companies Cannot Use IPO Proceeds to Buy Lands

SHANGHAI, Mar 25, 2008 (SinoCast China Financial Watch via COMTEX) -- NO MATCHES FOUND. | news | PowerRating | PR Charts -- An official responsible for listing examination at China Securities Regulatory Commission recently stressed again that a real estate developer cannot use the fundraising from its initial public offering to buy lands for real estate development as well as hoard land reserves and properties.

Given a real estate developer mentions such purpose in the IPO application, it will surly be refused, said an executive at a property company that is seeking regulatory approval for A- share IPO.

Industry analysts said listed real estate developers will have to pay more attention to improve their operations rather than rush to buy lands, which used to be a major driver to their share prices.

The iteration will little affect the well prepared ones, added the executive.

Zhang Yuliang, chairman of Greenland Construction (Group) Co., said the iteration is substantially an encouragement to quality real estate developers that are expecting to list in the domestic A-share stock market. Greenland, the largest real estate developer in Shanghai, will not be held back on its comprehensive property businesses, according to Zhang.

Anyway the iteration will impact the market sentiment to a certain extent, said an analyst at a consulting services provider in Shanghai. Some real estate developers will have to slow the IPO applications as they have to renew the documents to meet the requirement.

It signals a substantial change in CSRC's attitude toward supervision on the domestic real estate industry and a change in appraisal standard for listed real estate developers, which used to be closely linked to their land reserves.

An UBS analyst earlier said the situation that investors last year chased by listed real estate developers with affluent land reserves will change in 2008. The Chinese government will step up efforts to hold back and beat developers hoarding and corning lands, so investors will turn to those with potential to make profits in a short term and with sustainable growth ability.

As listed companies have had some land reserves before listing A shares, they usually invest the fundraising from share sales to the real estate projects under development rather than buy more lands and accelerate the development to take back investments as soon as possible amid the nation's tight monetary policy.

The real estate bellwether China Vanke Co. in 2007 took the lead to cut its property prices in Shanghai, Chengdu, Shenzhen and Guangzhou. This move, which has propelled others to follow, will enable Vanke to take back investments earlier to fund the follow-up development.

An analyst predicted that real estate developers in second- and third-tier cities would continue to seize land reserves for a certain period while the peers in major cities are improving operating strategies to realize a faster cash flow.

(USD 1 = CNY 7.05)

From www.stocknews.com.cn, Page 1, Monday, March 24, 2008 info@SinoCast.com

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