In the midst of a looming property investment market downturn in China, the company China Merchants Property announced last week that they would be issuing upwards of CNY 8 billion worth of Chinese A-Shares in the very near future. While A-shares are expected to open at the same price as the avarage of other company shares in the 20 days leading up to the opening, the shares will represent increased liquity without increased demand.
The Shenzhen-based company has committed to several high profile developments in many different areas. There are 14 particular development projects for which a significant portion of that CNY 8 billion will be designated.
The board of directors passed the issuance during a meeting last week on February 19th. The board also released an announcement stating that the issue price of these A-shares will not be lower than how much shares are trading for during the 20 days of trading before the date, or on the actual trading day. The general consensus is that China Merchant’s Property is not in deep financial trouble, however they are feeling the global credit crunch and have sought an alternative means to raise much needed capital.
The board of directors also elaborated on their plans for the future funds. While a considerable amount will be divided among the 14 development projects the company has going on at the moment, nearly CNY 2.6 billion will be used to purchase the utilization rights for plots. China Merchants Shekou Industrial Zone Co Ltd. is the company’s primary controlling shareholder and they will be releasing those plots to China Merchants Property.
Because of this large influx of A-shares which will be flooding the market very soon, investors are concerned about market saturation of A-shares but their concerns are also crossing over into the B-shares trading markets. B-share pricing has considerably dropped in response to the China Merchant Property's plans, among other market conditions. The primary concern is that there is no new demand for such a large number of A-shares to be issued. Further issuance would only dilute the market.
