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Tuesday, November 3, 2009

CapitaMalls, Longfor IPOs to test demand for Asia property

HONG KONG: CapitaLand Ltd, Southeast Asia’s largest developer, and China’s Longfor Properties Co may raise a combined US$3 billion (RM10.3 billion) in share sales that will test demand for Asian property stocks.

CapitaLand wants to raise up to S$2.8 billion (RM6.8 billion) from the listing of its CapitaMalls Asia Ltd unit in what could be Singapore’s largest initial public offering (IPO) since 1993. Chongqing-based Longfor, the biggest developer in China’s most populous municipality, may get as much as HK$7.1 billion (RM3.2 billion) in a Hong Kong sale.

The amount sought would almost double the US$3.2 billion raised by 10 real estate-related initial public offerings (IPOs) in Asia-Pacific so far this year. The two companies will be competing for investor funds against five Chinese developers that started marketing Hong Kong offerings last month.

“People have been waiting a long time to tap the markets for cash,” said Andrew Sullivan, a sales trader at Mainfirst Securities Hong Kong Ltd in Hong Kong. “With the markets trading around year-to-date highs, they are keen to lock in the money in case the bubble bursts.”

The 168-member Bloomberg Asia Pacific Real Estate Index has jumped 59% this year, double the benchmark MSCI Asia Pacific Index’s 29% rise.

CapitaMalls and Longfor are taking advantage of a rebound in Asian economic growth, led by a four trillion yuan (RM2.1 trillion) stimulus package in China, the world’s third-largest economy. Singapore raised its 2009 economic forecast last month after gross domestic product expanded for a second consecutive quarter in the three months through September.

CapitaLand is offering about 1.165 billion shares in CapitaMalls at S$1.98 to S$2.39 apiece, according to emails sent to investors by sale arrangers Credit Suisse Group AG and Deutsche Bank AG.

The share sale will allow CapitaMall Asia to undertake expansion plans, including the acquisition of land for new developments and the purchase of completed malls, it said last month when it announced the IPO.

The listing of CapitaMalls Asia will give investors access to a company that manages 86 retail properties across Asia, including China. The company’s net asset value is estimated at about S$5.3 billion as of Sept 30, according to a prospectus filed with Singapore’s central bank yesterday.

If it’s priced at the top end of the range, the share sale may be the largest IPO in the city-state since Singapore Telecommunications Ltd’s initial offering in 1993, which raised more than S$4 billion, a record for the island.

CapitaLand’s CapitaLand Retail unit reported a six-fold gain in profit last month as revenue from its China and Malaysia malls increased.

Longfor, backed by Temasek Holdings Pte and Ping An Insurance (Group) Co, plans to sell one billion new shares, or a 20% stake, at HK$6.06 to HK$7.10 each, said the document emailed to fund managers yesterday. The sale values the company at HK$35.5 billion, or 14 times 2010 earnings, as estimated by banks involved in the sale.

Longfor is pushing ahead with the IPO after a flurry of similar share sales by Chinese developers were shelved or downsized as the stock market declined and more property companies offered shares.

“In terms of fundamentals, Longfor is quite privileged, given its landbank covers major cities in northern and western China,” said Wang Ren, a Hong Kong-based analyst at CCB International Co, by telephone yesterday. “They are in a strong market position, they’re quite niche as they focus on the luxury segment. There are too many choices now, so investors have to be very selective. Some of the IPOs are very low-quality.”

Longfor was the largest developer in terms of the gross floor area of residential projects sold in the three years to 2008 in southwestern Chongqing, according to a draft share sale prospectus. Since then it has expanded to other Chinese cities, including Chengdu, Xian, Beijing and Shanghai.

Five institutions, including the Government of Singapore Investment Corp and Temasek, the city-state’s two state-owned investment companies, will buy a combined US$197.5 million worth of Longfor’s IPO shares as “cornerstone investors”, said the share sale document.

Companies use cornerstone investors, who are guaranteed shares in an IPO by agreeing not to sell their investments for a few months, to attract other buyers to their offerings.

Yuzhou Properties Co, a Xiamen, southern China-based property developer, declined as much as 10% on its debut in Hong Kong yesterday. The benchmark Hang Seng Index fell 2%.

Excellence Real Estate Group Ltd, the largest developer in Shenzhen’s central business district, last month delayed a Hong Kong IPO that could have raised as much as US$1 billion, according to a company statement.

Mingfa Group (International) Co, a developer in the southern Chinese provinces of Fujian and Jiangsu, last week decided to restart its IPO at a later date and cut the top end of an offering range by 24%, it said in a statement.

Citigroup Inc, Morgan Stanley and UBS AG are managing the Longfor sale, which is scheduled to be priced Nov 12. The stock will start trading Nov 19.

By Bloomberg (by Bei Hu & Shiyin Chen)

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