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Singapore's ION Orchard mall
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CapitaMalls Asia, the shopping mall developer and operator that is 65.5%-owned by CapitaLand, has received approval for a secondary listing in Hong Kong. The listing will be by introduction and its shares will be available to trade on the Hong Kong stock exchange from October 18, the company said on Friday.
The Hong Kong listing comes less than two years after the company floated in Singapore and is an attempt to widen the company’s investor base. Specifically, CapitaMalls Asia is hoping to attract the big insurance companies and other institutional investors in China that are not allowed to invest in the Singapore stock market, but can buy Hong Kong-listed stocks as part of China’s qualified domestic institutional investor (QDII) programme, CEO Lim Beng Chee said at a press conference in Hong Kong on Friday.
This is particularly important since its business in China, which accounts for 42% of CapitaMalls Asia’s portfolio at present, is expected to grow strongly in the next few years. The company currently has 40 malls in China, plus another 15 that are under development. The aim, according to the listing prospectus, is to almost double that to 100 malls in the next three to five years.
To do so, it will need capital and some of that it is clearly hoping to get from China.
“Local money understands our business and [these investors] want to be able to access our shares,” Lim said.
The company isn’t selling any new shares in connection with the Hong Kong listing, since it already has S$1.2 billion ($918 million) of cash that it needs to deploy before raising new money. The company also has no net debt, meaning it can get by for quite a while before it has to sell more shares — which it is probably quite pleased about, given the challenging market environment at the moment.
However, by getting a Hong Kong listing now, it is putting a platform in place so that it is ready to raise capital when it needs to and when the market environment is less hostile towards new share sales.
This is similar to what Swire Pacific is doing with regard to its property unit. The Hong Kong-listed conglomerate said just over a week ago that it intends to list Swire Properties by introduction after failing to complete an initial public offering in May last year. The group hopes the spin-off will release hidden value for its shareholders, but a key reason for the exercise is to equip Swire Properties with its own funding platform so that it will be able to more easily raise capital for its expansion in China. Recognising that the current time is not the best for raising new equity since valuations are depressed and investors are asking for big discounts, it has chosen to put the infrastructure in place to be ready when things improve.
The group hasn’t announced a timetable for the spin-off and as of September 23 it hadn’t yet submitted a listing application, but sources say it is hoping that Swire Properties will be able to list before the end of this year.
A key difference between the listings of Swire Properties and CapitaMalls Asia is that the former will distribute 17% of its share capital to Swire Pacific’s existing shareholders in connection with the listing (including a 7% stake that will go to Swire Pacific’s controlling shareholder). This will ensure that the existing shareholders will have the same size direct shareholding in Swire Properties that they currently have in Swire Pacific. It also means that there will be some liquidity in the stock from the beginning.
CapitaMalls Asia will help facilitate the transfer of its existing shares from Singapore to Hong Kong if investors want to do so and there will also be a bridging facility to enable investors to buy shares in Hong Kong in the first 30 days. However, with no new shares to be issued, liquidity is likely to be thin — a phenomenon common with stocks that have been listed by introduction. CapitaLand will set an example by transferring some of its holdings to Hong Kong, but since those shares aren’t traded anyway, it is a bit of an empty gesture.
Liquidity will only be created if institutional investors who are not long-term shareholders transfer their shares and start to trade them on the Hong Kong exchange instead. Or indeed, if the company eventually decides to do a follow-on share issue in Hong Kong.
“We recognise that liquidity will not be there on day one, but that will correct over time,” Lim said, adding that the company is viewing the secondary listing as a long-term strategic move that will enable it to tap capital from the top two financial markets in Asia in the future.
One key benefit with a listing by introduction is that there will be no dilution of the existing share capital, and as a result, the company isn’t expecting any immediate, short-term impact on its share price. Indeed, the share price finished 1.7% higher at S$1.22 on Friday following the news of the secondary listing.
The gains came after the company announced on Thursday that it will form a 50-50 joint venture with a developer in the Chinese city of Suzhou, the second-largest industrial city in China after Shanghai, to develop a shopping mall and two office towers in the city’s central business district, known as Suzhou Centre. The seven-storey mall will account for about 81% of the total gross floor area of the project. The total development cost (including the land) is estimated at about Rmb6.74 billion ($1.05 billion). CapitaMalls Asia’s 50% stake will require it to invest Rmb3.37 billion, or S$637 million.
CapitaMalls Asia’s partner in Suzhou, Suzhou Industrial Park Jinji Lake Urban Development Co, is owned by the Suzhou Industrial Park government and is the master developer of Suzhou Centre. The transaction is subject to approval by the Chinese government.
But CapitaMalls Asia isn’t just active in China. Its portfolio of 96 shopping malls spans five countries (Singapore, China, Malaysia, Japan and India) and has a property value of approximately S$25.6 billion. It owns stakes in three listed Reits with a focus on shopping malls — CapitaMalls Trust in Singapore, CapitaMalls Malaysia Trust in Malaysia and CapitaRetail China Trust in China and is also the manager of the Reits in Singapore and Malaysia.
Since it listed in November 2009, the company has made 11 acquisitions at a total investment cost of S$4 billion — seven in China and two each in Singapore and Malaysia. Despite the asset growth, its share price has fallen 42% from the IPO price of S$2.12 and Lim noted on Friday that at the current market capitalisation of S$5 billion, investors get the China business “almost free”. He based that on the fact that the market value of the company’s stakes in the listed Reits and the publicly available value of its various private Singapore retail funds plus its cash amount to about S$4.8 billion.
CapitaLand raised S$247 billion ($1.78 billion) from the IPO of CapitaMalls Asia by selling 35% of the share capital in the form of secondary shares.
CapitaMalls Asia will bear part of the cost of the transfer of two batches of shares from Singapore to Hong Kong. The first one will require shareholders to submit a “withdrawal of securities form” to the Central Depositary in Singapore by tomorrow and will enable the shareholders to trade their shares in Hong Kong on the October 18 listing date. The second batch will require the withdrawals form to be submitted by October 20 and will have the shares ready for trading in Hong Kong on November 3. However, shareholders will be able to transfer shares from Singapore to Hong Kong and vice versa at any time after these two batch transfers at their own expense.
China International Capital Corp and J.P. Morgan are joint sponsors for the secondary listing.
