CJ Land seeks $618 million from Hong Kong IPO

The Shanghai-based luxury property developer kicks off its institutional roadshow, while Chinese baby formula producer Yashili International raises $349 million ahead of its Hong Kong listing.

CJ Land, a Chinese luxury property developer, plans to raise up to HK$4.8 billion ($618 million) from a Hong Kong initial public offering to fund land reserve expansion.

The company comes to market only days after the Chinese government raised interest rates -- a move that surprised a large portion of the market, but which is in line with Beijing’s plan to shift focus from the over-emphasised GDP data to a more balanced growth in its next five-year plan from 2011 to 2015. The People’s Bank of China raised the renminbi lending rate last week for the first time in three years on worries of growing inflation and skyrocketing asset prices.

CJ, which is known as Changjia in China, predominantly focuses on projects in Shanghai and other affluent cities near China’s financial centre -- an area where property prices have triggered waves of criticism and concerns about the close-to-bursting asset bubble. But CJ’s strategy, which is to target China’s high-net-worth individuals and focus on high-end residential properties, enables it to maintain high average selling prices and to maximise gross profit margins, the company said in its preliminary IPO prospectus.

The company kicked off its roadshow on Monday and has already secured three cornerstone investors. They are: 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, has agreed to subscribe to an aggregate $150 million of shares with a six-month lockup.

CJ is offering 1 billion shares, of which 90% are primary and 10% secondary, at HK$3.20 to HK$4.80 each. The price range suggests the company could raise between HK$3.2 billion and HK$4.8 billion.

The deal comes with a greenshoe option which, if fully exercised, will allow the company to raise up to $711 million by selling an additional 150 million shares. About 90% of the shares are targeted at international investors, while the remaining 10% have been earmarked for the Hong Kong public offering. The split is subject to the standard Hong Kong IPO clawback mechanism. 

The deal will price on November 4 and the trading debut is set for November 11. Bank of America Merrill Lynch, BOC International, Citi and Macquarie are managing the sale.

CJ is based in Shanghai and was founded by Zhao Changjia, a self-made entrepreneur who also operates pharmaceutical companies and asset management firms. The company plans to use about 81% of the proceeds to acquire land, while another 14% will be used to repay bank loans.

Separately, Yashili International Holdings, a Chinese baby formula producer, raised HK$2.7 billion ($349 million) from its Hong Kong IPO after pricing its shares just above the mid-point of the indicative range.

The Guangdong-based company sold 644 million shares at HK$4.20 each, compared with an indicated price range of HK$3.55 to HK$4.80.

The deal consisted of 89.1% primary shares and 10.9% secondary shares that were being sold by existing shareholder Zhang International Investment. The deal comes with a 15% greenshoe option which, if fully exercised, will allow the company to sell an additional 96.6 million primary shares that will increase the potential proceeds to as much as $401 million.

In 2008, Yashili's products and those from 21 other Chinese domestic paediatric milk formula producers were found to be contaminated with melamine, a toxic substance used to make plastic. Last year, US private equity investor Carlyle bought a 17.3% stake in Yashili and has helped strengthen Yashili’s management expertise, enhance research and development capabilities, and create a world-class quality control system.

The trading debut is scheduled for November 1. Bank of America Merrill Lynch, Citic Securities and UBS are joint global coordinators and joint bookrunners on the deal.

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