Top Spring International Holdings, a Chinese property developer, kicked off a roadshow for its HK$2 billion ($257 million) Hong Kong initial public offering yesterday.
Investors shrugged off concerns about the effect of the government's tightening policy on China's overheated property market and showed strong interest in the deal, fully covering the books on the first day.
The Shenzhen-based developer is offering 250 million shares, all primary, at HK$6.23 to HK$8.10 each. That suggests the company could raise between HK$1.55 billion and HK$2 billion.
Based on Top Spring's 2011 forecast earnings, the offering pitches the company at a price-to-earnings (P/E) ratio of around 4.3 times to more than 5 times. That is a deep discount compared with the company's domestic rivals. Shares in Hong Kong-listed Country Garden and Agile are currently quoted at a P/E of 9.5 times and 7.5 times, respectively, according to data from Bloomberg.
China's largest property developer, China Vanke, which is listed on the A-share market, is trading at 9.9 times 2011 projected earnings.
Top Spring is the second property developer to tap the equity market in less than a month. Wharf, a Hong Kong-listed conglomerate, said in mid-February that it would raise HK$10.05 billion through a renounceable rights issue to fund its property investments on the Chinese mainland.
Top Spring attracted high-quality anchor investors yesterday, including a corporate investor and a large pension fund, which both placed chunky orders. Besides the good valuation, investors also like the company’s management, its portfolio of projects in China’s fastest-growing cities and its strong partnership with Scarborough Group, a British real estate and leisure activities group, according to a source.
The company has been developing real estate projects in cities such as Shenzhen, Hangzhou and Changzhou in the Pearl River Delta and the Yangtze River Delta. It plans to use HK$1.48 billion, or 90% of the net proceeds, to acquire new projects for development on the Chinese mainland, and the rest of the HK$165 million will be used for general corporate and working capital purposes, according to the company.
Around 225 million shares, or 90% of the offering, have been allocated to institutional investors and the remaining 10% will go in the Hong Kong public offering.
The deal comes with a 15% greenshoe option that, if fully exercised, would allow the company to raise up to HK$2.3 billion by issuing an additional 37.5 million primary shares.
The shares price on March 17 and the trading debut is scheduled for March 23. HSBC, Macquarie and Nomura are managing the sale.
Cooling the runaway property market has become a priority for Chinese authorities. In response to fast-rising property prices, policymakers have been deploying market-dampening measures since early last year. The central bank has hiked interest rates three times during the past four months to curb growing asset prices.
However, demand has remained strong. In 2010, home sales by China Vanke and Poly Real Estate, the country’s two largest developers, jumped more than 70% and 50% year-on-year, respectively, according to the companies’ statements to the stock exchange in Shanghai. Vanke’s January sales rose 221% to a record Rmb20.1 billion ($3 billion) as a result of selling 1.65 million square metres of properties during the month.
