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Xinyuan Real Estate Co., Ltd. Message Board

  • growth.value growth.value Nov 5, 2012 9:31 AM Flag

    Did XIN issue 7.5% more shares in the last four months?

    In XIN's latest 6-K filing, it indicated that XIN had 156,807,616 common shares with par value US$ 0.0001 per share outstanding as of November 2, 2012. The same number was 145,863,676 as of December 31, 2012, according to 2011 20-F. Remember, this is real common shares outstanding excluding number of options that have dilution effect. Also, XIN's basic weighted average number of shares outstanding for Q2 2012 was about 153.2k, according to the 6-k for XIN's Q2 reports. XIN's shareholders need an explanation for this huge dilution.

    One possible explanation is that XIN's price has appreciated so much in the last month. Then, many inside option holders exercised their options. However, during Q1, XIN also closed many days above $3, but we did not see this level of dilution.

    Any good explanations?

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    • Good thread.

      On Treasury Shares, my understanding mirrors the thread's in that I don't think they count in the "total diluted shares outstanding number" nor do I think they can they vote. The best thing for shareholders would be for XIN to go ahead and cancel those shares entirely.

      On the 3 million thing, I think the roundness of the number suggests the increased share amounts MUST be due to stock options. Only humans think in numbers so round.

      But that still leaves 2 questions I'm not sure about:

      1. What caused those 3 million shares to appear?

      Two suggestions have been proposed: maybe insider options were exercised, or maybe they weren't exercised, but accounting rules require them to be counted in the "total diluted shares outstanding" number if, and only if, the stock's price closes the last day of the Q higher than the options' exercise price.

      Opinions on those two or suggestions for alternatives?

      2. How many more options are out there that might appear on future quarters, and under which circumstances would that occur?

      • 2 Replies to hmmm26
      • The institutions did not like the fact that SSL had 20% of their own buy-back shares they voted themselves. The institutions were very vocal about it. Institutions are big into "one share, one vote".

        Page 97 of the 2011 F-20 lists options as of Jan 1, 2012....seems like there were 10-15 million options out there then. There were a number of 1 million and half million option blocks that would add up to 3 million shares. I suspect options are one reason for a share buyback.

      • Star, good point. We'll add your suggestion as a third possibility for question 1, above.

        1. So I'm clear: under your suggestion, are we talking about options that were issued in years past, but instead of being issued at a set exercise price, they come into effect if future profitability targets (or revs targets or expansion targets or whatever) are achieved, rather than just at a set price that doesn't change?

        So, instead of being standard options that might say "CEO is granted options for 1 million shares, at an exercise price of $2", these would instead say "CEO is granted options for 1 million shares, exercisable at $0, but only if profit target of $X per share is reached next year"?

        2. Or, under your suggestion, are we talking about options the company might issue at the end of the current year, now being counted because the standard the company is using to issue options is likely to be achieved?

        I like # 1 better than # 2, because it seems weird to account for shares stemming from options that might never even be issued.

    • GV,

      A couple weeks ago, Star and I noticed the same thing you did and tried to get to the bottom of this changing "total diluted shares outstanding".

      We came up with two potential alternatives, but this is the one I think (but don't know for sure) is right: It's employee stock options issued at previous strike prices.

      When XIN's end-of-quarter share price closes HIGHER than those options' strike price, the options are included in the "total diluted shares outstanding" number. But if XIN's quarter ending share price closes LOWER the exercise price, then the shares are not counted.

      I think the increasing amount of shares (I estimated the total at about 1.2 million ADR's, or 2.4 million Common Shares in 2Q) reflects the fact that XIN must have started the Q trading under those shares' strike price, but finished the Q trading above the strike price.

      • 1 Reply to hmmm26
      • There are also performance shares and options. Options tied to a specific event/accomplishment occurring. One event in the first quarter was a change in the years profitability being "more likely than not" to be met...this increased the number of employee options to be awarded. Another accomplishment might be a successful acquisition of property...say Daxing and/or Williamsburg...with the commensurate awarding of options.

    • The treasury shares were probably bought by a XIN subsidiary...and are held by that subsidiary. These shares are probably voted by the BOD. Shares outstanding for voting purposes are probably different from shares outstanding for earnings calculations.

      • 1 Reply to star_hominid
      • Star, thanks for the explanation. It sounds promising. However, I checked the filing of last year's annual meeting. It said "Shareholders of record at the close of business on November 4, 2011 are entitled to vote at the annual general meeting. Our common shares underlying ADSs are included for purposes of this determination. As of November 4, 2011, 153,807,616 of our common shares, par value US$ 0.0001 per share, were outstanding."

        You see, the 153,807,616 number used in 2011 annual shareholder meeting was also about 2% less than the 156,807,616 number used in 2012 annual meeting. I know XIN purchased lots of its own shares in the last two months of 2011 and first three months this year.The explanation left is something went wrong in the last four months.

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