China Real Estate Information Corporation (CRIC) yesterday launched the roadshow for an initial public offering that is seeking to raise up to $248.4 million ahead of a Nasdaq listing. The deal hits the market on the back of a tough week for Chinese property IPOs in Hong Kong.
The real estate information and consulting services provider is offering 18 million American depositary shares (ADS), each equivalent to one ordinary share. The shares are all primary, and the offering represents 13% of the enlarged share capital of the company. A 15% greenshoe, if exercised, could increase the maximum possible deal size to $285.7 million.
There are two sides to the business. First, there is a proprietary database that stores information about property developments across China. As of the end of June, the database had data on 38,200 developments or buildings and 24,200 plots of land in 56 Chinese cities. The company has sold subscriptions to the database to interested parties, such as property developers, since July 2006. This is a sellable product because information about property transactions in China is not publicly available -- as it is in places such as Hong Kong or the UK. The other side of the business is utilising the information stored in its database to provide customised consulting services.
CRIC had revenues of $50 million in 2008, more than six times the $8.2 million it generated in 2007. In the first six months of 2009, the company generated $31.2 million.
CRIC is a subsidiary of E-House (China) Holdings, a New York-listed Chinese real estate company. E-House will remain the controlling shareholder after the completion of the IPO. Once the transaction is closed, CRIC will acquire the online real estate business from Sina Corporation, which in return will become a shareholder of CRIC. This new business, which provides real estate news and information, will help CRIC generate revenues from online advertising.
CRIC will issue 47.6 million shares to Sina to pay for the online real estate business. After the transaction, E-House and Sina will be CRIC's two largest shareholders, with stakes of 51% and 34% respectively.
The ADSs are being offered at a price between $11.80 and $13.80 apiece, which translates into a 2010 price-to-earnings ratio of between 21.6 and 25.1 times. Investors are looking to the companies related to CRIC to compare valuations: E-House is currently trading at around 18 times its predicted earnings for 2010, while Sina is trading at around 24 times.
"The primary purposes of this offering are to create a public market for our shares, retain talented employees by providing them with equity incentives and obtain additional capital," CRIC said in a stock exchange filing. It said $30 million of the capital raised will be used for expenditure, mostly for investing in information systems. Another $20 million will go towards sales and marketing, while the rest will be used for general corporate purposes.
CRIC launches its deal just as the IPO market is turning sour, especially for Chinese property companies. Last week, two companies with exposure to the Chinese property market had disappointing debuts on the Hong Kong stock exchange: logistics center operator China South City Holdings dropped 23% on its first day, while residential developer Glorious Property fell by 14.5% when it started trading on Friday. Another developer, Powerlong Real Estate Holdings, took the unorthodox measure of pricing its IPO below the bottom of the indicative range as a means to ensure good secondary market trading.
Credit Suisse and UBS are joint bookrunners for CRIC's IPO. The deal is expected to price on October 15, with trading set to start the following day.