China Evergrande’s property management arm launching US$2 billion IPO as developer seeks to pare massive debt
- Evergrande Property Services’ IPO could raise as much as HK$18.17 billion if overallotment option is exercised
- Evergrande, China’s largest and most indebted developer, has total debt amounting to US$122.4 billion
Evergrande Property Services, a unit of mainland China’s largest and most indebted developer China Evergrande Group, is looking to raise up to HK$15.8 billion (US$2.04 billion) from an initial public offering in Hong Kong next week, a move that will allow its parent to pare back its massive debt.
The mainland property management services provider is offering 1.62 billion shares at an indicative price range of HK$8.5 and HK$9.75, equally splitting them between existing and newly issued shares, it said in an online media briefing on Sunday.
If the offer is priced at the top end and the overallotment option, known as greenshoe, is exercised, the company could raise as much as HK$18.17 billion.
The company is offering 10 per cent of its global shares sale to retail investors in Hong Kong and 90 per cent through international placements from Monday until noon on Thursday when the offer is expected to be priced. The stock is set to start trading on the Hong Kong stock exchange on December 2.
The developer sold about 582 billion yuan worth of properties up to October, achieving 91 per cent of its full-year sales target of 650 billion yuan.
“Evergrande has spent a lot of effort to improve its cash position,” said Gordon Tsui, chairman of Hong Kong Securities Association. “The IPO, together with the agreement with strategic investors of Hengda Real Estate, will be positive to the future development of the company.”
Evergrande’s shares closed 0.4 per cent lower at HK$16.62 on Friday. It has fallen 30 per cent this year, compared with a 6 per cent decline in the Hang Seng Index.
Evergrande has already breached the Chinese central bank’s threshold for indebtedness, known as the “three red lines” in the industry, according to an analysis by Huachuang Securities. The framework caps debt-to-asset ratio for developers at 70 per cent after excluding advance receipts, net debt-to-equity at 100 per cent, and short-term borrowings at no more than cash reserves.
Failing to meet those “red lines” may result in them being cut off from access to new loans from banks, the state-owned Economic Information Daily reported in late August.
Even against such a backdrop, Evergrande Property Services has attracted HK$7.2 billion from 23 cornerstone investors, representing 48.7 per cent of the offer. Artificial intelligence company SenseTime, a subsidiary of China Gas, as well as China Merchant Buyout Fund are among the cornerstone investors who are all optimistic and confident about the property management services company’s prospects and growth potential, according to people familiar with the offering.
“We have been contracted to serve 1,354 properties in over 280 mainland cities, which makes us a leader in the industry,” said Hu Liang, executive director and general manager of Evergrande Property Services told the media briefing. “We have a close cooperation with our parent Evergrande Group, which has provided a stable source of projects and business opportunities for us. The IPO funds will help us to conduct more M&A and new business development in the future.”