After days of waiting, Mingfa downsizes its IPO

Mingfa Group (International) has revised down the price range for its initial public offering, reducing the maximum deal size to HK$2.6 billion ($335 million) from HK$3.4 billion, according to a stock exchange filing posted on Friday.

"In view of current market conditions for initial public offerings and having regard to the best interests of the investors, the company and the joint bookrunners... decided not to proceed with the global offering under the original timetable," said the statement. It added that the company has, however, "agreed to relaunch [the deal] at a revised offer price range of HK$2.00 to HK$2.89". A new timetable has yet to be confirmed.

The bookrunners are Bank of America Merrill Lynch and Deutsche Bank.

Mingfa was expected to price its deal on Wednesday, the same day as another property developer, Excellence Real Estate Group, decided to withdraw its $1 billion IPO. Mingfa spent the next two days deciding whether to abandon or restructure the offering.

The decision to relaunch is slightly different from what happened with Powerlong Real Estate's IPO in early October. Powerlong, which resembles Mingfa in that they both focus on mixed-use commercial properties, priced its IPO below the bottom of the indicated range and gave retail investors the opportunity to withdraw their subscriptions given the new development and the indications of poor interest. (A number of them did, leaving the retail tranche less than 30% covered as opposed to about 75% covered before the offer to withdraw). However, the company accepted no new orders after fixing the price below the original range.

Mingfa, on the other hand, will refund all the retail orders that it has received and will build an entirely new book based on the revised price range. Institutional investors, who don't have to put in any cash when they submit their orders, don't need to get a refund, but will supposedly also be re-evaluating whether they want to stay in the deal or not.  

Mingfa is seeking to sell 900 million primary shares. The new price range of HK$2.00 to HK$2.89 compares with an original range between HK$3.03 and HK$3.79. Depending on where the final price is set, the deal will be between 4.6% and 34% smaller than if priced at the bottom of the original range.

Even if the original deal had priced at HK$3.03, it would have been inexpensive - a 60% discount to the estimated 2010 net asset value (NAV). The new price range will make it even cheaper, setting a new standard for low-cost property IPOs, which does not bode well for other deals in the pipeline.

Powerlong's revised price range resulted in a 53% discount to its 2010 NAV and since then, discounts in the order of 50% have been the norm. Last week Yuzhou Properties raised $209 million in an IPO at a price that valued the company at a 50% discount to NAV. And even the most successful among the recent property IPOs failed to do much better than that: last Thursday, Evergrande Real Estate priced its IPO at a 48.5% discount to the estimated 2010 NAV, resulting in a final deal size of $726.2 million.