By Dominic Whiting, Asia property correspondent
HONG KONG (Reuters) - Starved by banks and shut out of the stock market by dismal IPO conditions, Chinese developers are going cap-in-hand to investors to keep their lucrative housing projects alive.
Private equity and hedge funds are excited by the prospect of cheap investment in companies still notching up yearly earnings growth of 40-50 percent but getting desperate for finance.
For example, Robert Appleby, chief investment officer at ADM Capital, is looking to buy debt at deep discounts.
"There is more trouble to come and I wouldn't be diving into Chinese property companies even at these levels," Appleby told the Reuters Hedge Funds and Private Equity Summit this week.
As many as 40 unlisted Chinese developers have taken on structured investments, including convertible bonds, with investors counting on Hong Kong initial public offerings for their exit strategies.
But if the companies fail to list soon, they will have to refinance at a time when convertible bond investors are expecting 15-20 percent internal rates of return to compensate for higher risk, compared with 12 to 15 percent a year ago.
Volatile stock markets have derailed several IPOs globally this year, including in Hong Kong.
Evergrande Real Estate Group Ltd ditched a planned $2.1 billion initial public offering and is now exploring a $400 million to $500 million private placement. Continued...
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