Mingfa Group launches $440 million IPO

Property developer Mingfa Group (International) yesterday started a roadshow for an initial public offering that could raise as much as HK$3.41 billion ($440 million). The deal adds to a crowded IPO market that is already full of property companies looking to go public. And more are yet to come; Fantasia Holdings Group is another developer that could launch a roadshow in the next few days.

Mingfa's base deal consists of 900 million primary shares. If the 15% greenshoe is exercised, a further 135 million shares will be injected into the deal, bringing the maximum deal size to $506 million.

An indicative price range has been set at between $3.03 and $3.79 per share, which translates to 7.3 to 9.1 times projected 2010 earnings. But since this is a property company, investors are more concerned with the discount to net asset value (NAV). According to this measure, the price range puts the company at a 50% to 60% discount versus the estimated 2010 NAV.

Ever since Powerlong Real Estate Holdings reduced the size its IPO at the beginning of the month, property companies have had to offer their stock at deep discounts. But if Mingfa prices at the bottom, offering the full 60% discount to NAV, it will be one of the cheapest. Powerlong priced at a 53% discount to NAV, while Evergrande Real Estate Group is currently on the road with a $780 million IPO that is offering a discount of up to 55.9% versus its NAV.

On a price-to-earnings basis, Mingfa looks a little pricier. Even at the lowest price, the company will be valued at 7.3 times its 2010 projected earnings, which is more than the P/E multiple of 6.3 at the top of Evergrande's IPO price range. Powerlong's IPO price valued that company too at 6.3 times forward earnings.

Mingfa is a Chinese property developer that operates in Fujian and Jiangsu. It focuses on mixed-use commercial properties and integrated residential properties. It started out in Xiamen in 1994, and since then it has become one of Fujian province's major developers. Its strategy is to concentrate on cities where it already has a presence, before branching out into neighbouring cities that have strong economic growth prospects.

At the end of August, it had 34 projects at different stages of development. Its completed properties have a gross floor area (GFA) of 2.7 million square metres and its projects that are still under development have a GFA of 2.9 million metres.

With a business model focusing on mixed-use commercial properties, Mingfa in some ways resembles Powerlong. Sources close to the deal said that the differentiating features between the two companies are Mingfa's larger GFA, larger number of projects and longer operating history.

The company intends to use the proceeds for three main purposes: to acquire new land; to fund future projects, such as Mingfa shopping malls in Wuxi, Hefei and Zhangzhou; and for general working capital purposes.

The joint bookrunners on the Mingfa IPO are Bank of America Merrill Lynch, Bocom International and Deutsche Bank. The pricing is expected to take place on October 27, while trading will start on, or around, November 3.

Deutsche Bank is also working on another property IPO that is currently at the investor education stage. The company is Fantasia, which is a residential developer that focuses on up-market housing in the capital of Sichuan province, Chengdu, as well as in the nearby megacity of Chongqing. The company is looking to raise between $400 million and $500 million and the formal roadshow is expected to start in the next few days.