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3 Chinese property firms plan to tap US$4b in HK floats

Investor interest high despite moves to cool market


(HONG KONG) Three big Chinese property firms plan to hit the Hong Kong market next year to raise a combined US$4 billion, tapping heavy investor demand despite government tightening measures aimed at cooling a scorching property sector.


Hengda Real Estate Group aims to raise US$1 billion to US$2 billion in a Hong Kong initial public offering, while fellow Guangzhou-based developer Star River Group plans to raise between US$800 million and US$1 billion, sources familiar with the deals said on Wednesday. Both plan listings in the first half of 2008.

Longhu Real Estate, a property firm based in the western Chinese city of Chongqing, also plans to raise more than US$1 billion in a Hong Kong IPO next year, sources said previously, with Morgan Stanley sponsoring the deal.

‘The flow of Chinese IPOs in Hong Kong will remain strong next year, especially for the property market,’ one of the sources said. A glut of IPOs is slated to list in Hong Kong by the end of this year, including Chinese oil rig manufacturer Honghua Group, which aims to raise about US$500 million and will soon seek approval from the Hong Kong Stock Exchange for its listing sponsored by Morgan Stanley, sources said.

With the Chinese government trying to cool the booming construction sector and banks restricting loans for land purchases, property firms have been tapping the public capital markets in order to raise funds.

So far this year, some 10 mainland property firms have raised about US$8 billion in Hong Kong IPOs. The central bank expects Chinese gross domestic product to grow by 11.6 per cent this year, and many fund managers favour property as a way to hedge against inflation, which reached a nearly 11- year high in October at 6.5 per cent.

‘There are already plenty of choices among listed property companies. Investors are looking for toptier property firms with large land banks,’ said Michael Chung, a fund manager at Iventure Investment Management Ltd.

Hengda has tapped Credit Suisse, Goldman Sachs and Merrill Lynch to sponsor its IPO, while Star River has appointed UBS and Morgan Stanley. In January, Merrill Lynch, Deutsche Bank and Singapore investment company Temasek Holdings invested US$400 million in Hengda, according to the official Shanghai Securities News. As for Star River, its properties located in Beijing and Guangzhou are focused on high-end residential customers.

Although the government unveiled further cooling measures in September, including a ban on lending to developers found to be hoarding land and raising down payment requirements on second homes, IPOs by property firms have attracted strong demand.

The October IPO by Beijing-based Soho China Ltd, which raised US$1.65 billion, was 169 times covered in its retail portion. Its shares are up 24 per cent since listing. A US$1.66 billion initial public offering in April by Country Garden Holdings Co, the biggest by a Chinese developer, was more than 270 times subscribed by retail investors, and its shares have more than doubled from its IPO price.


Source: Reuters (Business Times 16 Nov 07)

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