(Yicai Global) March 10 -- Real estate developer China Vanke has given the green light to a plan to issue CNY15 billion (USD2.2 billion) of shares to select investors despite existing stockholders' fears of low pricing and dilution.

The general meeting of shareholders has passed the property company's plan with more than 98 percent of the votes to complete a private placement, the Shenzhen-based firm said in a statement recently. The blueprint of widened share capital on the mainland still needs to be approved by the core securities regulator. 

The company is garnering capital in Hong Kong too. Vanke carried out a rights issue of 300 million Hong Kong-listed shares yesterday to raise HKD3.9 billion (USD496.8 million), pricing the equity at HKD13 (USD1.70) apiece, lower than its net assets per share.

Chinese authorities have eased the plight of the debt-laden property sector as last November they removed refinancing restrictions for developers.

Vanke's mainland placement plan was revealed last month. It shows that the offering price will be no less than 80 percent of the average in the last 20 trading days. The firm will issue equity to no more than 35 investors to generate funds to build 11 projects and to supplement working capital.

However, investors fear that the issuance price of new equity will be lower than Vanke's net assets of CNY20.7 per share as the firm's capital market performance has been sluggish since 2021. 

China Vanke's Shenzhen-listed equity [SHE: 000002] slid 1.8 percent to close at CNY15.83 (USD2.30), resulting in a 4.9 percent decline in the past 12 months. Yesterday, it closed 0.2 percent higher after the plan was announced.

"The dilution resulting from low-priced private placement is a short-term phenomenon," Zhu Jiusheng, president of Vanke, said at the meeting. "In the long term, it depends on whether it can create value. If it generates value, shareholders will accept it."

Zhu responded to a question about the pricing of mainland-listed shares and whether it will be as low as its new Hong Kong-listed ones. The firm will be more prudent in deciding the price and timing of issuing A-shares, trying to make its shareholders satisfied, he said.

Zhu added that the board of directors released the private placement plan after several rounds of internal discussions because the company believes that there are structural opportunities in first and second-tier cities, which are expected to bring good results. 

Proceeds from further A-share issuances are mainly used to ensure timely deliveries of pre-sold homes. Some 60 percent of the proceeds from issuing H-shares can be used to refinance earlier loans. Due to the high borrowing costs abroad, issuing equity in Hong Kong can help Vanke repay some of its overseas debts while reducing its financing costs.

Editor: Emmi Laine