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CIFI Holdings, a Shanghai-based property developer, kicked off the roadshow for its Hong Kong initial public offering yesterday, aiming to raise between HK$1.67 billion and HK$2.07 billion ($215 million to $267 million).
Like many other Chinese developers, the company is primarily focused on the residential sector, complemented by some commercial properties. 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 a draft prospectus.
The latest deal comes as IPO activity in Hong Kong has been subdued this year amid worries about the outlook for the global economy and dampened investor sentiment. IPO volume in Hong Kong stands at $6.2 billion year-to-date, a drop from $28.4 billion during the same period last year, according to Dealogic.
Some of the biggest IPOs in Hong Kong so far this year have included Haitong Securities’ HK$13 billion ($1.67 billion) debut in April and Inner Mongolia’s HK$7 billion ($902 million) offering from Yitai Coal.
Last month, Shanghai Fosun Pharmaceutical, which is already listed in Shanghai, raised HK$3.97 billion ($512 million) after pricing its Hong Kong IPO at the bottom of the indicated range. It was the biggest new listing in Hong Kong in three months, but its stock performance has been rather lacklustre since then, which is not an encouraging sign for other companies planning an IPO in the city.
Fosun Pharma’s stock ended yesterday’s trading up 0.4% at HK$11.04, down about 6.4% from the offer price of HK$11.80.
CIFI is offering 1.255 billion shares for a price range between HK$1.33 and HK$1.65 each. Of the deal, 90% is intended for international investors and the remaining 10% is for the Hong Kong public. There is a 15% greenshoe option, or 188.25 million shares, which if exercised in full could increase the total deal size to as much as $307 million. All shares are new.
The price range translates into a 62% to 69% discount to its net asset value, a source said. That compares with comparable issuers such as Yuexiu and Shui On Land, which are trading at discounts of around 46.7% and 55.4%, respectively, according to another source.
The company plans to use the majority of the proceeds from the IPO to buy projects or land for development, the repayment of bank borrowings, as well as for working capital and general corporate purposes, according to a term sheet.
The company said in the draft prospectus that it focuses on developing residential properties with small-to-medium unit sizes and locations with good public transportation links, all of which are aligned with China’s real estate-related policies. It also has a nationwide geographical coverage and a strong presence in selected first-, second- and third-tier cities in the country, it says.
Within the next five years, CIFI said it aims to become one of the top 20 real estate enterprises in China in terms of sales. One of its future business strategies is to “optimise our land bank structure to achieve higher profitability and sustainable quality growth”.
Risk factors include its dependence on the performance of the real estate market in China, particularly in the cities in which it develops its property projects and manages the properties it has developed. Its operations are also subject to extensive governmental regulations and, in particular, it is susceptible to changes in policies related to the country’s real estate industry.
The company’s earnings have been growing during the past few years. It booked Rmb1.46 billion in profit and total comprehensive income in 2011, up from Rmb448.8 million in 2009, according to the draft prospectus.
The roadshow kicked off yesterday and the Hong Kong public offering is set to start today (November 13). The pricing is expected on November 16, with the listing slated for November 23.
Citi, Morgan Stanley and Standard Chartered are joint global coordinators for the deal. Bocom and First Shanghai join them as bookrunners.
