With little more than a month left of the year, IPO activity in Hong Kong has started to gather pace in recent weeks. Listing hopefuls in the pipeline include PICC Group, which is expected to raise somewhere between $3 billion and $4 billion from its high-profile H-share IPO that is scheduled to launch on Thursday.
The latest company to hit market is Future Land Development, a Chinese property developer that opened the order books yesterday for a Hong Kong IPO of between HK$2.06 billion and HK$2.54 billion ($265 million to $328 million).
Before the launch, Future Land had signed up three cornerstone investors, as well as a number of anchor investors, including a top-tier global mutual fund, a source said yesterday.
The cornerstone investors — Greenwoods Asset Management, Guangdong Finance Investment International and HNA Hong Kong Group — will buy a combined $80 million worth of shares, or as much as 30% of the base deal, according to the term sheet. On back of this demand visibility, the company is looking to complete the IPO on an accelerated timetable and the institutional and retail portions of the deal both opened yesterday. The order books will close on Thursday, with the listing slated for November 29.
The deal comes after CIFI Holdings, a fellow property developer based in Shanghai, priced its Hong Kong IPO at the bottom of the indicative range last Friday evening. The company raised HK$1.67 billion ($215 million) following a week-long roadshow and will start trading on November 23.
Sources said that valuation is one of the key attractions for both these Chinese property companies. Future Lands’ indicative price range translates into a discount of up to 73% to net asset value, while CIFI’s final price values the company at a 69% discount to NAV.
Future Land
Future Land is offering 1.418 billion shares at a price between HK$1.45 and HK$1.79 each. The base deal represents 25% of the enlarged share capital. There is also a greenshoe option of up to 15%, or 212.7 million shares, which could increase the deal size to as much as $377 million. All the shares are new.
Of the base deal, 10% is earmarked for the Hong Kong retail tranche, while 90% will be offered to institutional investors.
The price range translates into a discount to NAV of between 67% and 73%, the source said. This compares with an average discount of 43% for its three main comparables, Hong Kong-listed Longfor Properties, Sunac China and Greentown China, the person noted.
Future Land is one of the largest unlisted developers in China and a leading property developer in the Yangtze River Delta. It focuses primarily on the development of quality residential properties and mixed-use complex projects, according to a draft prospectus.
As of end-August, it had completed 28 property projects and 17 project phases with an aggregate gross floor area of about 10 million square metres since it was established in 1996. It also had 46 property projects in nine cities that were under development or held for future development.
Its products are of high-quality, which enables it to sell them very quickly after acquiring the land and constructing the buildings, the source said.
Of the $80 million to be taken up by the cornerstone investors, Greenwoods Asset Management is taking $15 million, while Guangdong Finance has promised $26 million and HNA Hong Kong is investing $39 million. The cornerstones are subject to a six-month lock-up.
Future Land said in the prospectus that its operations are subject to extensive government policies and regulations and, in particular, it is susceptible to changes in policies related to the Chinese property industry and in regions in which it operates. Its business and prospects are also heavily dependent on the performance of the country’s property markets, particularly in various major cities in Jiangsu province and Shanghai, it added.
Bank of America Merrill Lynch is the sole global coordinator and sole sponsor for the deal. CICC and Haitong join the US bank as bookrunners.
CIFI Holdings
CIFI sold 1.255 billion shares at HK$1.33 each, raising $215 million. The shares were marketed in a range between HK$1.33 and HK$1.65 per share, which translated into a discount to NAV of between 62% and 69%. The final 69% discount is significantly wider than that of key comps like Yuexiu and Shui On Land, which early last week were trading at discounts of around 47% and 55%, respectively.
The deal maintained the 90-10 split between the institutional and retail tranches, a source said.
There is a 15% greenshoe option, which if exercised in full could increase the total deal size to $248 million. All the shares are new.
Investors liked the reasonable valuation and the buyers included China funds as well as some corporate and international investors, the source noted.
CIFI plans to use the majority of the IPO proceeds to buy projects or land for development, and to repay bank borrowings, according to a term sheet. Some of the money will also go towards working capital and general corporate purposes.
Like many other Chinese developers, CIFI is primarily focused on the residential sector, complemented by some commercial developments. It has more than 40 property projects in 11 cities across three geographic regions in China: the Yangtze River Delta, the Bohai Economic Rim and the Central Western region, according to the prospectus.
Citi, Morgan Stanley and Standard Chartered were joint global coordinators for the deal. Bocom International and First Shanghai joined them as bookrunners.
Aside from PICC, which looks set to become the largest listing in Hong Kong this year, other deals in the pipeline include Zhengzhou Coal Mining Machinery, which is already listed in Shanghai and is expected to start the roadshow for its Hong Kong IPO tomorrow, according to a source.
Zhengzhou Coal, a leading manufacturer of mining and excavating equipment, started pre-marketing for a $400 million to $500 million IPO in mid-September, but in light of the feedback it chose not to launch the deal at that time. Instead it went back to the Chinese regulators and asked to increase the maximum discount versus its A-share price to 15% from 10%. That request has been approved, sources say, which will give the company more flexibility with regard to the pricing.
Wison Engineering Services, a Chinese engineering company, started pre-marketing last week for an IPO of about $200 million to $300 million, but hasn’t yet decided when to launch the deal.
Meanwhile, Li Ka-shing’s Cheung Kong has decided not to proceed with the IPO of its extended-stay hotels business at this time. The business, which is being spun off into a trust under the name of Horizon Hospitality, obtained a listing approval from the Hong Kong stock exchange late last week and was expected to raise up to $850 million.
The deal is said to have attracted a lot of interest from institutional investors but, according to a source, Cheung Kong has decided to take another look at the valuation of the properties that are to be included in the trust before proceeding with the pre-marketing. As a result, the IPO will likely be pushed into next year.
Bank of America Merrill Lynch, DBS and Standard Chartered are joint bookrunners for Horizon Hospitality.
