CJ Land calls off $618 million Hong Kong IPO

The Shanghai-based luxury property developer becomes the first company to cancel a Hong Kong listing in months as it worries about continued tightening policies targeting the Chinese property sector.

CJ Land, the Chinese luxury property developer that was aiming to raise up to HK$4.8 billion ($618 million) from a Hong Kong initial public offering, has scrapped the deal citing tougher market conditions on the Chinese mainland. The company made the announcement yesterday – the same day as the shares were expected to be priced.

CJ Land is the first company to call off a listing plan in Hong Kong for months, and the move puts it in sharp contrast to the otherwise sizzling hot IPO market, where heavy subscription rates and allocation clawbacks have been commonplace over the past couple of months.

The latest issuer to delay a sizable transaction was Shenzhen-based Shirble Department Store. The company postponed a $130 million Hong Kong listing in early July, but returned earlier this week with an enlarged offering, inspired by the current strong demand for new equities. Shirble started bookbuiling on Wednesday for an IPO of up to $205 million.

CJ Land kicked off its institutional bookbuilding last Monday and was aiming to raise between HK$3.2 billion and HK$4.8 billion ($412 million to $618 million) to fund land reserve expansion for its high-end development projects.

However, the developer is based in Shanghai and mainly focuses on projects in or near China’s most affluent city, where the housing market has experienced the most alarming price appreciation and consequently become a target of Beijing’s tightening measures. Chinese policymakers are determined to strengthen property management to ensure land supply for affordable housing.

“In light of the continued policy uncertainty surrounding China’s property sector, the company has decided not to proceed with the global offering under the original timetable,” CJ Land said in a statement to the Hong Kong stock exchange yesterday.

“The company will continue to review the market situation and further announcements will be made at such time as a decision regarding a re-launch is reached,” the company added.

A company spokeswoman said CJ Land would consider a listing in Hong Kong sometime next year when the market situation is better.

“The international offering has actually received good demand; the institutional tranche has been fully covered,” she said.

CJ Land had secured three cornerstone investors who agreed to subscribe to an aggregate $150 million worth of shares with a six-month lockup. They were: Chosen Elite, an indirect wholly owned subsidiary of Hong Kong conglomerate Cheung Kong (Holdings); Chow Tai Fook Nominee, which is owned by billionaire Cheng Yu-tung; and Tailwind Group, an investment vehicle of Shikumen Capital Management.

CJ Land was offering 1 billion shares at a price between HK$3.20 and HK$4.80 apiece. Of the total, 90% were primary shares and 10% secondary. The deal also came with a greenshoe option which could have allowed the company to raise as much as $711 million. About 90% of the shares were targeted at international investors, while the remaining 10% was earmarked for the Hong Kong public offering.

The deal came to market shortly after the Chinese government outlined its next five-year plan from 2011 to 2015. The plan aims to rebalance the country’s skewed economy and allow common wage-makers to share in the success of the country’s economic growth. The plan is expected to lead to the emergence of more affordable housing.

“We expect property prices in major cities to decline by 5% to 10% from the current historical high over the next 12 months, while transaction volumes would drop by 15% year-on-year, and by more than 30% in some cities,” analysts at Credit Suisse wrote in a report.

China’s minister of land and resources, Xu Shaoshi, was recently quoted by Xinhua News as saying that the country’s property market will probably reach a comprehensive correction in the fourth quarter this year. “The ministry will strengthen property management and clear up idle land to ensure land supply for affordable housing,” he said.

CJ Land’s IPO was expected to price yesterday and the trading debut was set for November 11. Bank of America Merrill Lynch, BOC International, Citi and Macquarie were managing the sale.

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