Yuzhou Properties sets IPO price at bottom of range

Yuzhou Properties, a residential developer based in Fujian province, has fixed the price of its initial public offering at the bottom of the range, according to a source, capping the deal size at HK$1.62 billion ($209 million). The outcome isn't that surprising given that it is the smallest of the four property developers that have been going head to head in the Hong Kong market over the past week. When investors make a decision about which IPOs they have time to research, the smaller ones are always in danger of losing out.

Incidentally, there have been rumours in the market that the second smallest, Mingfa Group (International), will also be forced to price low.

The fact that Yuzhou had no obvious edge against the other three property companies trying to list or against the host of Chinese developers that are already listed in Hong Kong would have made it even harder to attract investor attention. It also wasn't the cheapest offering in terms of valuations -- although looking at this company on a standalone basis, it certainly doesn't look expensive.

There were no details available on the level of demand for Yuzhou last night, although sources said the retail tranche was fully subscribed. The overall deal was believed to be only between two and three times covered. This would have been enough to get the listing out the door, but doesn't leave much of a comfort zone when it starts trading as many investors would already have received their desired allocation.

Yuzhou is set to start trading on November 2, i.e. next Monday.

Meanwhile, Excellence Real Estate Group and Mingfa are both due to announce the pricing of their respective IPOs today, followed by Evergrande Real Estate Group on Friday. Excellence and Evergrande are expected to have attracted the most demand given their larger deal sizes -- a larger deal typically means the stock will have greater liquidity and that it will be easier for investors to exit quickly, especially if the market is to suddenly reverse direction and start falling. Excellence is looking to raise up to HK$7.8 billion ($1 billion), while Evergrande is seeking up to HK$6.46 billion ($834 million).

Yuzhou is the largest residential developer in the city of Xiamen with a 10% market share and also has a small sideline of commercial properties. According to its listing documentation, it is committed to "high-quality design". Its focus on the Fujian province makes it a beneficiary of the government's aim to promote economic integration with Taiwan via the West Strait economic zone (Fujian is the centre of this), which was initiated in 2004 and written into the 11^th five-year plan in 2006.