Future Land raises $265 million from Hong Kong IPO

The price is fixed at the bottom of the range, valuing the Chinese property developer at a 73% discount to NAV.
<div style="text-align: left;">
Shanghai: Future Land is a leading property developer in the Yangtze River Delta
</div>
<div style="text-align: left;"> Shanghai: Future Land is a leading property developer in the Yangtze River Delta </div>

Future Land Development, a Chinese property developer, has raised HK$2.06 billion ($265 million) from its Hong Kong initial public offering after fixing the price at the bottom of the range.

The deal attracted a good mix of long-only and hedge fund investors, with most of the orders coming from Asia, a source said on Friday. However, the retail portion of the deal was reduced to 2.5% from 10%, due to weak demand from retail investors. The leftover shares were reallocated to institutional investors, increasing the institutional tranche to 97.5% from 90%.

Despite the volatile market environment, Future Land was the second Chinese property company to complete a Hong Kong IPO in a week. CIFI Holdings, a Shanghai-based developer, priced a $215 million offering on November 16. It too fixed the price at the bottom of the indicated range.

In its trading debut last Friday (November 23), CIFI opened flat versus its IPO price at HK$1.33. But by the end of the day it had fallen 1.5% to HK$1.31, pointing to a continuously difficult environment for new listings in the city. Hong Kong’s Hang Seng Index rose 0.8% on the same day, taking its year-to-date gain to nearly 19%.

Valuation was seen as one of the key attractions for both these Chinese property companies. Future Lands’ IPO price implied a 73% discount to net asset value (NAV), the source said, while CIFI’s final price valued the company at a 69% discount to NAV.

Future Land had signed up three cornerstone investors prior to launch, which bought a combined $80 million worth of shares, or 30.2% of the base deal at the final price. According to the source, it also had order indications from a number of anchor investors, including a top-tier global mutual fund.

On the back of this demand, the company conducted the IPO on an accelerated timetable, with the order books staying open less than a week (from November 19 to 22). The stock is scheduled to start trading on Thursday (November 29).

Future Land booked Rmb10.8 billion ($1.7 billion) in revenue in 2011, up from Rmb5.8 billion in 2009, according to the listing prospectus. Jiangsu Future Land, a subsidiary that has B-shares listed in Shanghai, contributed 85.7% of its total revenue last year, down slightly from 94% in 2009.

Despite a series of offerings hitting the market in recent weeks, including PICC Group’s offering of between $3 and $3.6 billion, the value of IPOs in Hong Kong so far this year is far below that of 2011. Volatile markets due to worries about the eurozone debt crisis and a slowdown in China have dampened appetite for new listings in the city.

Hong Kong was the top destination for new listings globally for three straight years in 2009 to 2011, but ranks fifth year-to-date after New York, Nasdaq, Tokyo and Kuala Lumpur, according to Dealogic. IPO volume in Hong Kong stands at $6.8 billion so far this year, a drop of nearly 80% from $29.6 billion in 2011, the data show.

Future Land sold 1.418 billion shares at HK$1.45 each, raising $265 million. The deal was marketed at a price between HK$1.45 and HK$1.79, which represented a discount to NAV of between 67% and 73%.

The final discount to NAV of 73% compared with an average discount of 43% for its three main comparables — Hong Kong-listed Longfor Properties, Sunac China and Greentown China, a source said earlier last week.

The base deal represents about 25% of the enlarged share capital. There is also a greenshoe option, accounting for up to 15% of the deal or 212.7 million shares, which could increase the total deal size to $305 million. All the shares are new.

Future Land is one of the biggest 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 the prospectus.

Its products are of high quality, which enables it to sell them very quickly after acquiring the land and constructing the buildings, the source has said.

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 the regions in which it operates.

Its business 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.

Of the $80 million taken up by the cornerstone investors, Greenwoods Asset Management bought $15 million worth of shares, while Guangdong Finance Investment International invested $26 million and HNA Hong Kong Group $39 million. The cornerstones are subject to a six-month lock-up.

Bank of America Merrill Lynch was the sole global coordinator and sole sponsor for the deal. CICC and Haitong joined the US bank as bookrunners.

¬ Haymarket Media Limited. All rights reserved.