A Successful Financing Case

Through a four year financing plan, the HSBC Investment Bank financed more than $one billion and four hundred million for the new world group. Mr. Xu Lianghua, director of corporate finance and director of China Affairs of Hongkong HSBC Investment Bank Asia Limited, was interviewed by reporters. The newly completed Hongkong world finance center (New World China Land Ltd), which has been 4 years and accumulated over $1 billion 400 million, has been introduced in detail.

Since the 90 era, Zheng Yutong consortium, a famous Chinese businessman in Hongkong, has started to enter the middle and low-grade real estate market in the mainland through flagship New World Development Co. It has become a real estate developer in Beijing, Wuhan, Tianjin and Shenyang.

After the peak period of 1993, many buildings in cities, especially high-grade buildings, were largely vacant, making the international capital market's view of China's real estate market rather negative.

Under such circumstances, it is difficult to convince them to invest in the development of the mainland real estate market for New World Development Co.

In November of 1995, HSBC issued the $500 million equity fund for the first time through the private sector.

The issue is the largest private placement in Hongkong's history, with private equity investors holding 43% of the new world homeowners and 57% of new world development.

The second time is the $350 million mandatory convertible bond issued for the new world China Financial Corporation.

After a year of successful private placement, the new world China hopes to raise more capital for its investment in real estate in China.

As a wholly owned subsidiary of the new world development, the size of the new world Chinese company is too small. The issuance cost of the ordinary bonds is relatively high. If the listing does not have the conditions of three years' performance, it will not be able to meet the needs of the new world.

Thus, HSBC mainly designed convertible bonds for debt investors in the last convertible bond that they did not touch in the last private placement.

However, this way also has a large structural drawback: after the listing of the company, bonds can be turned into stocks when they are not yet mature, and a large number of stocks may suddenly enter the market during the exchange, which will cause pressure on the stock price at that time and even affect the price of the initial public offering, because investors expect the share price will not rise immediately after the initial issue.

To this end, the structure of HSBC is designed to convert all bonds into stocks, and as part of the initial public issue, it is necessary to decide whether to exchange shares before the market is listed, and there is no convertible bond after listing, which gives the exact information to the investors about the number of markets in circulation; of course, it also adds difficulty to the issue.

This issue is one of the largest convertible bonds issued in Asia except Japan. HSBC has a share of US $210 million, but has created a total demand of US $860 million. After issue, bond trading price has always been higher than the issue price.

After two and a half years of public circulation, the new world is ready to go public on the stock exchange in 1999 with a scale of $568 million.

The biggest obstacle facing this issue is that international investors have many misunderstandings about China's real estate industry, and little is known about the changes that actually occur and are brewing.

How to change the bad impression of investors has become the key to deciding whether to issue or not.

To enable equity investors to better understand China's real estate market, HSBC securities, a HSBC Group, held a seminar on housing reform in China, Hongkong and Singapore on 6-7 May 1999. In order to cooperate with the global distribution, HSBC has organized two independent visit activities. In advance, there were detailed research reports, and the activities traversed three continents of Asia, Europe and North America. In 6-7, HSBC also organized a large-scale global road show and visited 11 cities on three continents.

It is a rare practice to hold three global promotional activities for a single issue. After these three great activities, we finally completed the work of "education" for investors.

In the course of this issue, convertible bond conversion is a key link.

There are three ways to convert a bond holder: to subscribe to the largest number of shares in the initial public offering, or to convert the bonds into shares, to earn cash income, or to subscribe only part of the largest bond stocks, and the rest of the bonds are cash.

After the roadshow, the results were quite encouraging: the demand for equity investors was $783 million, and the demand for bondholders was US $143 million, with a total demand of US $926 million.

At this point, the story of the financing of the new world with a total amount of more than 1 billion 400 million dollars was also successfully concluded by HSBC's first hand plan.