March 4 (Bloomberg) -- Sun Hung Kai Properties Ltd., Hong Kong's biggest developer by market value, is borrowing HK$5.5 billion ($706 million) from a group of 17 banks, in preparation for the possible resumption of government land sales in the city.

The property developer increased the amount it raised by 10 percent after banks offered to lend it more than it asked for. The company borrowed $1.65 billion for five years paying an interest margin 0.27 of a percentage points more than the Hong Kong interbank offered rate, and HK$3.85 billion for seven years at 0.37 of a percentage point, a company statement showed.

``The residential property market has made a good recovery both in terms of volume and prices since July last year,'' said Raymond Kwok, Sun Hung Kai's vice chairman in the statement. ``The government's decision to resume land sales signifies that the property market is returning to normal.''

Sun Hung Kai Properties is taking advantage of low interest rates and the availability of funds in the city. The interest margin is almost half the 0.5 percentage points more than Hibor it is paying on an existing HK$7.8 billion seven-year loan, arranged in 2001 and maturing in February 2008.

The cost of the loan shows the banks are confident about Hong Kong's economic recovery, Kwok said. The local economy expanded a seasonally adjusted 6.4 percent in the third quarter - - the biggest gain on record.

The property developer didn't disclose the total cost of the loan. Bankers involved in the transaction said the five-year loan yields 33 basis points more than Hibor, and the seven-year loan yields 43 points. A basis point is 0.01 of a percentage point. When funds in a revolving loan are repaid, the money can be borrowed again; in a term loan, it can't.

Confidence

Hong Kong in January said it would invite bids for 17 sites during the next 14 months. Timothy Li, a spokesman for the Housing, Planning and Lands Dept. said today that no decision has been made on the timing of the land auctions.

Residential property prices in Hong Kong are still affordable and demand will remain buoyant, after prices rebounded in the past few months, Kwok said. Property prices have rebounded 34 percent since April, according to Midland Realty Holdings Ltd., the city's biggest listed realtor.

``Prices are presently still about 60 percent lower than the peak and level with 1993,'' Kwok said.

Hong Kong property sales, including apartments, factories and office buildings, surged to HK$30.5 billion in February from HK$7.97 billion a year ago, according to the Land Registry last month. The number of transactions more than doubled to 10,967 from 4,622. The February figures reflect transactions from January.

Property Sales

Sun Hung Kai Properties recorded property sales of more than HK$10 billion since July 2003. It generates more than HK$5 billion of rental income annually from its investment properties, Kwok said in the statement.

The developer's net debt to shareholders' funds currently stands at around 12 percent, the company said. Sun Hung Kai last year reported net income for the 12 months to June 30 fell 23 percent to HK$6.58 billion.

Bank of China (Hong Kong), HSBC Holdings Plc, Mizuho Corporate Bank, Sumitomo Mitsui Banking Corp., the Bank of Tokyo- Mitsubishi Ltd., BNP Paribas SA, Bank of Communications, Bank of East Asia Ltd., Citigroup Inc., National Australia Bank Ltd., Tai Fung Bank, Dah Sing Financial Group, Hang Seng Bank Ltd., UFJ Holdings Inc., ABN Amro Holding NV, Nanyang Commercial Bank Ltd. and Wing Lung Bank Ltd. participated in the facility.

It has HK$44.8 billion of syndicated loans outstanding, according to Bloomberg data. It's rated A with negative outlook by Standard & Poor's, and A- with stable outlook by Fitch.

The stock closed down 1 percent yesterday at HK$74.25. It has risen 16 percent so far this year, compared with a 7 percent gain of the benchmark Hang Seng Index.

To contact the reporter for this story: Patricia Kuo in Hong Kong at pkuo2@bloomberg.net

Last Updated: March 3, 2004 21:30 EST