Swire Pacific to raise up to HK$20.8b in IPO

HK Island's biggest commercial landlord to sell 13.8% stake

(HONG KONG) Swire Properties Ltd, landlord to Time Warner Inc and Societe Generale in Hong Kong, seeks to raise as much as HK$20.8 billion (S$3.7 billion) in what would be the city's largest initial public offering since 2007.

Swire Properties aims to sell 910 million new shares, equivalent to a 13.79 per cent stake, at between HK$20.75 and HK$22.90 each, Martin Cubbon, executive director of parent Swire Pacific Ltd, said in London during a video conference with reporters in Hong Kong on yesterday.

The stock is to be priced May 7 and start trading May 14, he said.

Swire Properties, the biggest commercial landlord in eastern Hong Kong island, is raising money as office rents in the city may increase this year as companies start to rehire amid a more optimistic economic outlook.

Prime office rents on Hong Kong Island, which fell 19.6 per cent last year, may rise 4 per cent in 2010, according to real estate broker CB Richard Ellis Group Inc.

'Swire Properties is capital constrained,' said Mr Cubbon, who is also Swire Properties chief executive officer.

'We have relatively modest gearing and absolute borrowings but we are constrained by our interest coverage ratios, which the rating agencies look at.'

Swire Pacific will have a controlling stake of 86.21 per cent after the IPO, according to the company prospectus.

Of the HK$19.3 billion the company would raise assuming a mid-point price of HK$21.83, approximately 70 per cent will be used to repay debt and 11 per cent to fund ongoing projects in Hong Kong and China.

The remaining 19 per cent would be kept for future property developments, according to the company prospectus.

'We will seek to minimise the cost of having a lot of cash up front without being able to deploy all that cash immediately,' said Mr Cubbon.

Charles Bremridge, finance director of Swire Properties, said that after the IPO the company's debt-to-equity ratio would be reduced from 30 per cent to 13 per cent.

Swire Properties owns the Pacific Place shopping and office complex in Admiralty, where Deloitte & Touche LLP and Societe Generale are tenants.

In eastern Hong Kong Island, Swire's buildings include the 5.99 million square foot TaiKoo Place and house companies such as Time Warner and JPMorgan Chase & Co.

The company enjoyed average retail occupancy rates of 98 per cent and residential occupancy rates of 92 per cent in the past three years.

The total valuation of properties was HK$183.8 million on March 31, Mr Cubbon said.

At the top end of the range, Swire Properties' IPO would be the largest in Hong Kong since the November 2007 share sale of China Railway Group Ltd's HK$22.1 billion Hong Kong first-time share sale, according to data compiled by Bloomberg.

Created as a trading company in London in 1816, Swire Pacific owns 42 per cent of Cathay Pacific Airways Ltd, Hong Kong's biggest carrier, and also bottles Coca-Cola in China and supplies offshore oil rigs.

Swire Properties' will be the second real estate IPO in Hong Kong this year since investors turned cool toward Chinese developers after 30 of them raised US$15.7 billion in first-time share sales in the city since 1999, according to Bloomberg data.

China SCE Property Holdings Ltd raised HK$1.56 billion in a Hong Kong IPO in February.

Property IPOs in Hong Kong fetched a combined US$8.6 billion in 2007. Sunac China Holdings Ltd and Excellence Real Estate Group, two Chinese developers, last year delayed Hong Kong IPOs that sought as much as HK$10 billion between them, according to Bloomberg data. -- Bloomberg

Source: Business Times, 4 May 2010