Dalian Wanda raises $3.72b in landmark HK IPO

The Chinese property developer priced shares towards the top on Tuesday, becoming Hong Kong's largest IPO in 2014.

Dalian Wanda Commercial Properties raised $3.72 billion on Tuesday after pricing its initial public offering towards the top of the range, making it Hong Kong’s biggest IPO this year and the largest in real estate globally.

The unit of Chinese billionaire Wan Jianlin’s Dalian Wanda Group’s overcame challenging conditions in China’s real estate market to surpass CGN Power’s $3.16 billion flotation earlier this month.

For 11 months this year, it looked as though HK Electric would hold its position as the largest IPO after it raised $3.1 billion in January.

But the second largest developer of shopping malls and office buildings in the world won the accolade, after selling 600 million shares at HK$48 per unit, towards the top of the HK$41.80 to HK$49.60 per unit range.This puts the valuation at around $24 billion, and will give the company ample capital to develop new projects across China. It has 178 property projects in 112 cities across 29 provinces in the mainland.

It became the largest-ever real estate IPO globally, surpassing Global Logistics Properties $2.99 billion floatation in Singapore in 2010, according to Dealogic data, and is the biggest IPO in Hong Kong since AIA's $20.5 billion listing in October 2010.

Underwriters were confident shares would price at HK$48 per unit on Tuesday afternoon, although the final price still needed approval by Dalian Wanda, sources close to the deal told FinanceAsia. Pricing was not finalised until Tuesday night.

“The banks are guiding [investors] towards the top of the range,” one banker close to the deal said.

"The pricing discussion seems to be settled. There are just a few sides of the conversation going on,” a second banker added on Tuesday afternoon.

A third banker close to the deal noted that the final book was made up of investors across the spectrum — high-net-worth individuals, long-only institutions, hedge funds, and corporates. The deal was multiple times oversubscribed, allowing the issuer to exercise the greenshoe option and tack on an additional 90 million shares onto the base deal. Post-shoe, the company raised $4.2 billion.

Investors placed orders for stock across the HK$41.80 to HK$49.90 range. “The deal worked for some investors at the mid-point, but there were other less price sensitive investors at HK$48,” a fourth banker told FinanceAsia. “Quite a few investors were disappointed but that’s where the company wanted to price.”

The deal was skewed towards long-only institutions and anchor orders, with the top 20 positions making up 60% of the book. The cornerstone investors accounted for half of the deal, which left little stock on the table. This gave the issuer pricing power, and allowed them to hold firm at HK$48 per share.

Real estate in China
In some ways, the timing of Dalian Wanda’s IPO could not have been worse.

Despite the government’s efforts to stimulate China’s property market, it continues to struggle. Slowing sales, construction dropping off and banks becoming more cautious about lending have all contributed to a poor year for the mainland’s real estate sector.

Beijing also introduced restrictions on second and third home purchases, higher downpayments on mortgages and tightened credit for property developers.

Dalian Wanda also remains heavily in debt, with its debt-to-equity ratio standing at 87.8% as of June 30, compared to 53% in June 30, 2013, according to the company’s prospectus.

When it was private, Dalian Wanda had a much higher cost of debt than listed companies. Now it’s a different story. “Their cost of debt is going to drop dramatically by being a public company. They will also use the international bond market [more],” the fourth banker said, noting that having access to cheaper funding will help it pay down its debt.

China’s surprise move to cut interest rates last month should help indebted property companies as well.

The rate cut coupled with strong cornerstone support and a positive credit rating from Moody’s helped Dalian Wanda across the finish line.

It received $2 billion worth of support from 11 cornerstones, including Kuwait Investment Authority, Och-Ziff Capital Management, China Life Insurance, Ping An Insurance and Dutch pension fund APG.

On December 12, Moody’s Investors Service said Dalian Wanda’s IPO would give the company a positive credit rating. The flotation will also improve its credit profile, support its Baa2 issuer rating, and give it a stable outlook.

“[The IPO] will enhance its equity base and capital structure,” said Kaven Tsang, a vice-president and senior analyst at Moody’s. “In addition, the IPO will expand its investor base and enhance its already strong liquidity position for the purposes of business growth.”

Some argue that fears of a real estate crash in China are overstated, insisting that government initiatives could help the larger developers next year.

In the spring, the government began taking action to prevent a crash by urging all banks to offer more mortgage financing to first time home-buyers. It also began allowing developers to issue equity.

Goldman Sachs, CICC, UBS and HSBC led the deal as joint sponsors and global coordinators. Barclays, Bank of America Merrill Lynch, Deutsche Bank, Credit Suisse, Citi, Nomura and DBS are among the joint bookrunners and lead managers.

Rush to the finish line
Dalian Wanda is the latest company seeking to tap capital markets before year-end. Chinese automaker BAIC Motor Corp, partially owned by Germany’s Daimler, on December 15 raised $1.4 billion in an IPO after pricing 1.24 billion shares at HK$8.90 per unit, in the middle of the initial HK$7.60 to HK$9.80 per unit price range.

BAIC Motor is the passenger car unit of state-owned Beijing Automotive Group. Citic Securities, Deutsche Bank, HSBC and UBS acted as joint sponsors.

Other recent listings include Momo Technology, the Chinese social networking website backed by Alibaba, which raised $216 million and Nirvana Funeral Services, the Malaysian death-care firm that secured $261 million.

“We’re in that last wrestle at the moment,” the second banker said. “Issuers are trying to do some more [equity raising] before year-end, but most investors won’t do much until next year.”

“Investors have stopped looking. It typically gets a lot more quiet as people try to close their books for the year,” the first banker added. “There will still be some activity but it will be quite muted.” 

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