Greentown Service Group raised HK$1.55 billion ($200 million) from its initial public offering in Hong Kong on Tuesday but in the end relied on institutional investors to get the deal done as post-Brexit nerves and aggressive pricing put off some retail investors.
The property management affiliate of Chinese developer Greentown China finalised the offer price for the 778 million share deal at HK$1.99 per share. That gave the company a market capitalisation of $712 million and was just above the mid-point of the firm's HK$1.74 to HK$2.2 indicative price range.
Final allocation was still being finalised late on Tuesday, according to a source familiar with the situation, who said the institutional tranche was fully subscribed by cornerstone investors, hedge funds, private equity investors and strategic partners of the company. A number of long-only institutions also participated in the IPO, he said.
Excluding the $94.8 million cornerstone investment from Greentown China, China Orient Asset Management, and Zhejiang Silicon Paradise Asset Management, Greentown Service will have a free float of 14.7% immediately after listing on July 12.
Because the order book was built across the Brexit vote and the IPO was priced fairly aggressively, some investors were left on the sidelines, a second source familiar with the matter said.
As a result, the Hong Kong public offering, which accounted for 10% of the deal, was undersubscribed.
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Greentown Service’s final valuation equates to 15.8 times projected 2016 earnings based on syndicate consensus estimates, which means it still commands a slight premium to Colour Life Services Group, despite the latter's 16.5% share price rally since the June 23 Brexit vote.
Colour Life, a bigger property management company by asset size and a subsidiary of developer Fantasia Holdings, currently trades at 15.5 times earnings.
Yet, thanks to its extensive client base, Greentown Service was still able to attract sufficient demand to carry the IPO across the finish line. Backers included a number of strategic partners who value the business model and believe the company will grow quickly as more developers use external professional managers, according to the second source.
Greentown Service provides property management and consultancy services to Chinese real estate companies, with a particular focus on high-end residential properties. Services provided by the company include cleaning, gardening, repair, maintenance, and security services.
According to a deal term sheet, the company plans to spend 49% of the IPO proceeds for acquisitions, 22% for the development of community products and services, 19% for debt repayment, and 10% for working capital.
Greentown Service will be the third Chinese property management company listed in Hong Kong after Colour Life and Zhong Ao Home Group.
Bank of America Merrill Lynch and BOC International are joint sponsors of the IPO while Haitong International and Credit Suisse are joint global coordinators.
