Fantasia kicks off yet another property IPO

Fantasia Holdings Group yesterday launched the roadshow for a Hong Kong initial public offering that could raise as much as HK$3.2 billion ($413 million). This is the second property developer with a focus on western China to hit the market in recent weeks.

The company is offering 1.45 billion shares with an indicative price between HK$1.75 and HK$2.20 each. A 15% greenshoe, if exercised, could increase the maximum possible deal size to $475.9 million.

Founded in Shenzhen in 1996, Fantasia is a property developer that operates in Sichuan, the Pearl River Delta, the Yangtze River Delta and in the Beijing and Tianjin metropolitan areas, places which are all experiencing strong growth. The bulk of its landbank, around 70%, is located in the Chengdu-Chongqing Economic Zone, which makes it look somewhat similar to the other major property IPO that is currently underway -- Longfor Properties. Longfor started out as a developer in Chongqing, branching out into other cities, such as Chengdu, Beijing and Shanghai. It is currently marketing a $916 million IPO that is scheduled to price on Wednesday.

Fantasia focuses on urban complexes -- developments located on the outskirts of major cities consisting of offices, apartments and shops -- and upmarket housing in the form of apartment blocks and townhouses. Residential property accounts for approximately 60% of its landbank.

The money raised from the IPO will be split between increasing the landbank and financing current projects. More specifically, around 55% of the capital will be used to acquire land reserves, which could include the possible purchase of Shenzhen Meinian Plaza for Rmb300 million ($44 million), 35% will be used to fund the continued development of a number of projects and the remainder will be stored away as working capital.

Six cornerstones, taking a combined $63 million, are already part of the deal. The largest is Hero Path, a subsidiary of Chinese real estate firm China Poly Group Corporation, which will take HK$100 million, followed by Rouy Chia International Investment (Group) Company, owned by Thai tycoon Ruayrungruang Chanchai, which will invest HK$78 million. The other four, which will each buy $10 million worth of shares, are Choi Chee Ming, Huang De Lin, Joseph Lau with Luen Hung, and Bondic International Holdings, which is owned by Cheung Chung Kiu.

The price range values the company at a price-to-earnings ratio between 5.25 times and 6.6 times 2010 projected earnings, based on the joint sponsors' average forecasts. On a discount-to-net-asset-value (NAV) basis, the range translates into a discount between 54.3% and 62.8% 2010 NAV.

If it prices at the top of the range, the valuations are pretty much in line with other recent IPOs by Chinese developers. Two weeks ago Evergrande Real Estate Group raised $726 million at a 48.5% discount to 2010 NAV and Yuzhou Properties raised $209 million at a 50% discount. A price below the top will make Fantasia look somewhat cheap, especially compared to Longfor, which is raising capital at an implied 30% and 39% discount to NAV.

There are four bookrunners on the deal: BOC International, Citic Securities, Deutsche Bank and Goldman Sachs. The pricing is expected on November 18 and a trading debut is scheduled for November 25.