Logistics real estate developer ESR plans to sell 653.7 million shares priced in the range of HK$16.20 and HK$17.40 ($2.07 to $2.22) per share, to give the company a market capitalisation of up to $6.74 billion, according to a term sheet seen by FinanceAsia.
ESR is betting both that third-party logistics in Asia will boom and that Hong Kong’s IPO market will rebound. It is looking to raise up to $1.45 billion, which is more than the $1.24 billion for which it was originally looking.
The re-IPO could make ESR the second-largest IPO on the Hong Kong Stock Exchange this year after AB InBev relaunched the flotation of its Asia unit at the end of September.
Analysts are cautiously optimistic. “We noted that ESR has robust fundamentals and growth prospects,” analyst Arun George of Global Equity Research wrote on platform Smartkarma. “Our valuation analysis suggests that we would participate at most at the low-end of the proposed IPO price range.”
Besides the valuation increase, ESR’s flotation has attracted OMERS Administration Corporation, one of Canada’s largest pension funds, as its cornerstone investor. The $585 million subscribed by OMERS might dispel some of the mist surrounding the IPO, which didn’t secure any cornerstone investors for its first attempt in June.
The logistics real estate developer was given approval to list by the Hong Kong Stock Exchange in May, but postponed the IPO a month later “in light of current market conditions,” the company said in a statement.
ESR is trying to take advantage of an improving tone in the market, analyst Sumeet Singh from Aequitas Research wrote on Smartkarma. Listings had frozen in Hong Kong after frequent street protests. But Singh pointed out in June that the company has been aggressive in acquiring assets across Asia-Pacific which made people feel that operations were “being ramped up into the IPO”. The upside from its valuation remained unclear given the rich valuation and comparison to listed peers, he said.
ESR's property valuation change might be a risk as the fair value of its properties contribute significantly to the company's profits, Essence International noted in a report in June. The macroeconomic downturn might also lead to a revaluation of the company's properties, it added.
According to a JLL report in June, ESR owns the greatest number of logistics properties in Asia-Pacific and is also the main logistics supplier of JD.com, China's second-largest e-commerce website. As well as several property funds, the company maintains its own direct investments in real estate across the mainland, Japan, South Korea, Singapore and Australia.
The real estate developer was not the only company to delay its Hong Kong IPO this summer. Apart from AB InBev’s withdrawn-and-revived IPO, Ant Financial, Tasly Holding and Opal Cosmetics are all rumoured to have delayed their IPO plans in Hong Kong.
The firm’s books are expected to close this Friday, with a listing planned on November 1 according to the term sheet. About 28% of the IPO proceeds are earmarked for property development and co-investments, while the majority will go to repayment of financial instruments including class-C shares.
Deutsche Bank and CLSA are joint sponsors on the deal and joint global coordinators together with Credit Suisse, Citi, DBS and Goldman Sachs.
