It plans to sell 16.65m ADS at between US$8.75 and US$10.75 each
China’s IFM Investments Ltd’s initial public offering could suffer because of mounting fears about a slowdown in China’s booming real estate market.
IFM has an exclusive franchise agreement to sell residential property in China under the Century 21 brand.
It said in a regulatory filing that it plans to sell 16.65 million American Depositary Shares priced at between US$8.75 and US$10.75 each.
At the midpoint, the IPO would raise about US$162 million.
But Eric Guja, a research analyst with Connecticut-based investment firm Renaissance Capital, said the IPO may price below the company’s forecast range, both because of concerns about the Chinese real estate market and because two private equity investors are selling part of their stakes.
Private equity firms are often good at selling assets at the top of the market, and in 2009 stock investors grew increasingly wary of IPOs where private equity funds were selling.
The company was not available for a comment.
IFM is heavily exposed to the Chinese residential real estate market. It has offices in 34 major cities and has about 4.7 million property listings.
It sells mortgage management and franchise services, but in the first three quarters of 2009, IFM’s company-owned brokerage offices accounted for more than 90 per cent of its revenue.
China’s real estate market has benefited from strong economic growth and improved access to credit, but some say the market could be getting too torrid for its own good.
‘The housing market in major cities is hot, reflecting an abundance of credit and limited investment options for Chinese households,’ said Michael Lea, the director of the Corky McMillin Center for Real Estate at San Diego State University.
Mr Lea added that the market in major cities like Beijing and Shanghai is likely overheating.
Some argue that the Chinese real estate market in general is looking frothy.
Earlier this month, at a conference in Hong Kong, economist Nouriel Roubini said that asset bubbles in commodity, real estate and equity markets could eventually slow China’s rapid growth.
Mr Roubini was one of the few economists who accurately predicted the magnitude of the US and European financial crisis.
Some local economists believe that China is moving closer to boosting interest rates, in part to rein in speculative excess in property markets.
The beginnings of a slowdown in real estate may already be here. China’s National Bureau of Statistics said recently that property investment rose 16.1 per cent in 2009 from the previous year – slower than the 17.8 per cent increase in the first 11 months of the year.
‘It’s still a very underdeveloped real estate market compared to the rest of the world, but the recent news from the country is likely going to concern some investors about the near-term growth trends in the business,’ said Renaissance’s Mr Guja.
If IFM can meet its longer-term growth targets, its valuation may be more attractive, he added.
IFM’s valuation is roughly in line with much larger publicly-traded Chinese real estate services company E-House China Holdings Ltd, said IPOdesktop.com president Francis Gaskins. At the midpoint of its planned IPO range, IFM has a price-to-book value of 2.82 compared with E-House’s 2.78.
IFM reported net revenue of 443.7 million yuan (S$91 million) for the nine months ended Sept 30, up 112.4 per cent from a year earlier.
It swung to a profit in the same period, reporting net income of 88.3 million yuan, compared with a loss of 99.3 million a year earlier.
The company is expected to price today and debut on the New York Stock Exchange under the symbol ‘CTC’ tomorrow.
The underwriters, led by Goldman Sachs and Morgan Stanley, have the option to buy an additional 2.5 million shares.
Source: Business Times, 26 Jan 2010