Four mainland property developers plan IPOs

Yanlord launches roadshow for Singapore listing, but delays setting a price range in the hope market will stabilise.
There has been a significant correction in global stock markets and China has just flagged another round of measures to prevent its property market from overheating. However, that has not stopped four mainland property developers from readying to tap the IPO market. Collectively they are looking to raise up to $2.4 billion over the next month or so.

First out of the gates will be Yanlord Land Group, which launched a formal roadshow yesterday for a Singapore IPO that aims to raise about $350 million. It will be followed by Shui On Land, which earlier this week began pre-marketing for a Hong Kong IPO of about $1 billion. HSBC will buy $100 million worth of shares in that offering, according to sources.

Shimao Properties and China Greentown, which are also looking to list in Hong Kong, are a little further behind, which could end up serving them well given the current market environment. Shimao received a preliminary listing approval last week, but according to sources the company will need to update certain information before it gets the final go ahead for its offer, which is currently aiming to raise about $600 million. Greentown, which is targeting at least $500 million, has yet to have a listing hearing, but is also expected to hit the market sometime in June.

According to bankers, the four companies are sufficiently different that it shouldnÆt be a problem even if they do end up running head to head with one another. The recent downturn in the global markets could pose more of a challenge, however, even though most people still see solid long-term growth for the sector - since an increase in personal wealth in China will enable more people to afford their own homes or upgrade to better ones.

ôUltimately, the correction wonÆt kill off demand, but it will certainly give investors a reason to ask for more favourable valuations,ö says one banker.

Another banker notes that the few deals that have had the misfortune to be marketed to investors during the recent turbulence, such as Bank of China, Thai Beverage and Rayong Refinery, have shown that ôyou can still take a good quality company that is reasonably priced to the market.ö

ôThe short- to medium-term choppiness in the market is not comforting to investors, but these (property) deals wonÆt price for another month and a lot can happen in that time,ö he adds.

Indeed, CLSA and HL Bank (a subsidiary of MalaysiaÆs Hong Leong Bank), which are joint bookrunners for YanlordÆs offering, have decided to hold off on setting an indicative price range until the secondary markets stabilise. Consequently they arenÆt accepting any orders for the time being even though the official roadshow is already underway.

While unusual, this shouldnÆt affect the bookbuilding since Singapore listings typically require four weeks between the lodgment of the prospectus and the final listing approval from the regulators anyway. Even if the price range isnÆt set until the roadshow reaches the US on June 5, there will still be one week to build the books before the final price has to be fixed towards the middle of the month, one source says.

Yanlord is being pitched to investors as a developer of high-end residential properties with a focus on ôstrategically selected high-growth citiesö in China. Among its high-profile projects are the Yanlord Riverside Gardens, which will comprise 25 high-rise apartment blocks within 15 minutes from ShanghaiÆs financial centre in Pudong when all four phases are completed.

Having started in Shanghai and Nanjing in 1993 and 1994 respectively, the company now has a presence in seven cities and recently began developing high-grade commercial properties in prime locations for sale or lease. The first such investment property has just been completed and it is expected to finish one more in each of the coming four years.

According to one analyst, Yanlord is well positioned to sustain its earnings growth momentum and to continue to enhance its net asset value thanks to a cost-competitive land bank and a strong name recognition.

The company is looking to sell 25% of its enlarged issued share capital in the form of 456 million new shares. There is also a greenshoe option of up to 20% of the original deal size. Only 2.2% of the shares has been set aside for Singapore retail investors, while 97.8% of the deal will be sold to international institutions. The latter tranche will include shares reserved for directors, employees and associates of the company.

The challenge of setting a price range stems from the fact that mainland property stocks are currently very volatile after taking a significant beating in recent weeks.

Shanghai Forte Land, which is regarded as one of the closest comparables for Yanlord, has slipped 14% in the past two weeks and that includes a 7.2% rebound yesterday. It currently trades at 10.2 times its projected 2006 earnings, according to Bloomberg data.

Among other mainland property comparables, China Overseas Land has fallen 26% in the same period including a 9.6% bounce yesterday , but is still quoted at a 2006 PE multiple of 14.9. Agile Properties is down 24% to give a PE of 12.9 times and Guangzhou R&F Properties is off 17% for a 2006 PE of 12.6.

Investors seem particularly concerned about rumours that the Chinese government may increase the required downpayment for property acquisitions to 50% from 30% and raise mortgage interest rates in a follow-up to the interest rate hike at the end of April. However, neither of those measures have been confirmed.

What the government did announce last week was six measures that once again seemed aimed at clamping down on speculative transactions and included promises to build low-cost housing and punish developers who hoard land or drive up prices. It said it would use taxation, bank credit and land policies to guide and regulate housing demand, but provided no details.

Since Shanghai is among a selected few cities that has already imposed voluntary measures to curb soaring priced and help improve profitability, the impact from the new measures on property companies with a large portion of their business in the financial capital is expected to be less severe, some observers reckon.

Both Yanlord and Shimao Properties would fit into this category, while Greentown is based in Hangzhou and Shui On Land is considered a nationwide developer.

Shui On Land is the China property arm of the Hong Kong-based Shui On Group, which is controlled by property tycoon Vincent Lo. It is primarily involved in large scale urban redevelopment projects, which makes it a fairly unique play among the Hong Kong-listed mainland developers.

The company, which will be brought to market by Deutsche Bank, HSBC and JPMorgan, is planning to sell about 25% of its share capital to investors, but has yet to fix the terms of the offering, sources say.

YanlordÆs completed property projects has a gross floor area (GFA) of about 1.5 million square metres and a further 984,000 square metres GFA of properties under development. It also holds 1.89 million square feet of GFA available for future development.

Among its completed projects, almost 60% (in terms of GFA) is located in Shanghai, while 34% is in Nanjing. The company also has residential and commercial projects in Guiyang, Tianjin, Chengdu, Suzhou and Zhuhai that are either completed or under development

As of the end of last year, the company had total assets of S$1.65 billion ($990.5 million) and a net gearing ratio of 46%, which compared with an industry average of over 70%.

It reported a net profit of S$122.2 million ($73.5 million) in 2005, which was up 124% from 2004 but 21% below the profit reached in 2003, reflecting the fact that it had fewer apartments available for sale or pre-sale in 2004. Syndicate research forecasts a 46% improvement in net profit in 2006 and another 75% to S$312 million in 2007 when six new projects will be completed. The gross rental yield is expected to rise to 10.4% in 2007 from 5.8% this year.

It intends to distribute at least 30% of its net profit as dividends in 2006 and 2007, according to the listing document.

Prior to the IPO, the company was 94.9% owned by Yanlord Holdings which in turn is 95% owned by chairman Zhong Sheng Jian and 5% by his wife.

Founded by its chairman - a Singaporean who emigrated from Guangdong - Yanlord will be the only sizeable mainland property company to be listed in Singapore, which may attract some Singapore-specific funds from a diversification aspect, one observer says.

Morgan Stanley and Goldman Sachs are joint bookrunners for Shimao Properties planned offering, while Greentown will be brought to market by JPMorgan and UBS.
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