Stocks News
- Squeezed developers turn to HK for IPO funds
Date: 12-Jun-2007 Sources: (Shenzhen Daily)
A CLUSTER of initial public offerings (IPOs) by mainland property firms will hit the Hong Kong market in the coming months, tempting investors on a housing market that refuses to be tamed by a government worried about a real estate price bubble.
With 8 million people flocking to cities each year, developers are notching up annual earnings growth of as high as 70 percent and are keen to build funds for a land buying spree.
They are hamstrung by a clampdown on bank lending to the property sector, part of a series of market tempering measures including interest rate rises, a land appreciation tax and a capital gains tax on apartments.
But while the government frets about possible property price bubbles in major cities, Hong Kong's stock market has proven a deep font of capital for developers.
A US$1.66 billion initial public offering in April by Country Garden Holdings Co., the biggest by a mainland developer, was 50 times covered by institutional investors and more than 270 times subscribed by retail investors.
That gave hope to imitators, with bankers predicting another 20 developers in the IPO pipeline.
'Housing the masses on the mainland is still a very good business,'said Michael Smith, head of Asia property investment banking at Goldman Sachs.
'Many property companies are just performing so well, and continue to surprise with the margins they're generating,'he said. 'So they're trading at higher multiples than previously.'
The flow of mainland IPOs in Hong Kong will start to slow next year because the government has made it more difficult to set up the necessary offshore company structure, a move intended to encourage more Shanghai listings.
Among those who crept through before the rule changes is RREEF China Commercial Trust, a real estate investment trust (REIT) holding twin Beijing office towers that wants to raise US$300 million in an IPO this month.
The trust has drawn the Government of Singapore Investment Corp. as a US$34.6 million strategic investor, but has failed to grab many fund managers with a maximum yield of 6.4 percent when Beijing office capitalization rates are as high as 9 percent.
'Sorry, that's not even a starter, to take mainland risk when rents are heading south,'said Peter Churchouse at Lim Advisors, adding that a spate of new supply would put pressure on Beijing office rents.
Developers are more popular, considering firms already listed in Hong Kong are raking in profits.
Guangzhou R&F Properties posted 69 percent earnings growth in 2006, while others, such as Hopson Development Holdings Ltd., had growth of around 28 percent.
The next developer to list is Guangzhou-based KWG Property, which this week opens a roadshow for a US$400 million IPO.
Beijing-based Soho China Ltd. also hopes for a US$400 million windfall from an IPO early next month, and Aoyuan Corp. (Group) Ltd. is waiting for Hong Kong stock market approval for its US$250 million listing.
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