Soho China, Shimao, R&F and 8 other Chinese developers may be ineligible for mainland cash
- Soho China, Shimao Group, Guangzhou R&F Properties and eight others have seen their valuations drop below the floor that qualifies them for the scheme
A clutch of Hong Kong-listed Chinese property developers risk losing the backing of mainland investors, as their market values fall below the threshold limit for inclusion in the Stock Connect programme.
The cross-border investment scheme gives mainland investors access to a large pool of stocks traded in Hong Kong, while overseas investors are able to buy yuan-traded shares on the mainland’s exchanges.
Soho China, Shimao Group Holdings, Guangzhou R&F Properties and eight other companies on the Hang Seng Composite SmallCap Index have seen their market capitalisation fall below the HK$4 billion (US$512.2 million) floor that qualifies them for the scheme. That would be a further hit to these developers that are already plagued by liquidity stress and growing calls for winding-up by unpaid creditors.
The expulsions may take place as early as August, when the mainland’s exchanges are set to verify the eligibility for the mutual access scheme following the quarterly index rebalancing by compiler Hang Seng Indexes.
Mainland Chinese property stocks listed in Hong Kong will be dealt a blow if they are made ineligible for purchase by mainland investors, as onshore investors were the main drivers of a recent rebound. The Hang Seng Mainland Properties Index had rebounded by as much as 40 per cent within a month through May 20, after Beijing introduced a broad package to bail out the industry last month. Now, most of those gains have been erased.
“Typically, mainland funds dominate the trading in these smaller property stocks in Hong Kong and without such support, these stocks could very probably fall even lower,” said Wu Kan, an investment manager at Soochow Securities in Shanghai. “Overseas investors have no appetite for these small-caps. The property market is still in a downturn and the time could be longer than expected.”
Among the 23 property developers on the Hang Seng small-cap gauge, almost half face the risk of getting booted from the Stock Connect.
The sizes of the companies under risk straddle a broad spectrum, ranging from CIFI Holdings Group, which has a market capitalisation of HK$3.6 billion, to Cosmopolitan International Holdings, valued at HK$495 million. The list includes Shimao, which is capitalised at HK$2.89 billion and Guangzhou R&F, which is valued at 3.5 billion. Sino-Ocean Group Holdings, valued at HK$3.1 billion, is also among those at risk.
“The policy effect of stimulating demand is limited,” said Zhao Xuxiang, an analyst at Orient Securities. “Whether the property market can sustain a recovery depends on expectations of residents’ incomes and their expectations of home prices.”
