Tuesday, April 27, 2010

HK$20.8b IPO plan by Swire Properties

HK office rents may rise this year amid more optimistic economic outlook

Swire Properties, landlord to Time Warner Inc and Societe Generale in Hong Kong, plans to raise as much as HK$20.8 billion (S$3.7 billion) in an initial public offering, said four people with knowledge of the plan.

The unit of Swire Pacific plans to sell 910 million new shares, or a 13.79 per cent stake, at HK$20.75 to HK$22.90 each, according to the sources.

Dutch pension fund manager APG Groep NV plans to buy Swire Properties shares worth US$200 million, two of the people said yesterday.

The sale comes as office rents in Hong Kong may rise 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 is attractive because it's an established and well-known company already with a good and well-known track record in Hong Kong and China,' said Andrew Sullivan, a sales trader at Mainfirst Securities Hong Kong.

'Swire's Hong Kong portfolio is seen as a well-diversified portfolio - in terms of property type and tenant - and their developments in China are following a tried and tested formula which will appeal to long-term institutions.'

Swire Properties, the biggest commercial landlord in eastern Hong Kong island, owns 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.

Hongkong Land Holdings, one of the biggest office landlords in the city's financial hub, said last month it expects high-occupancy levels and 'steady rentals' this year.

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's HK$22.1 billion first-time share sale, according to data compiled by Bloomberg.

'This is a quality issue,' said Marco Mak, an analyst based in Hong Kong with Taifook Securities Group. 'There have been very few new real estate IPOs by Hong Kong developers, so institutional investors should be interested in it as a core holding.'

The indicative price range represents a discount of between 8.3 per cent and 16.1 per cent to the estimated net asset value at the end of 2010, three of the people said. Goldman Sachs Group, HSBC Holdings and Morgan Stanley are arranging the IPO.

The price range values Swire Properties at 31.4 times to 34.6 times this year's earnings estimated by the same banks, said two of the people.

Hongkong Land, owner of the Landmark and Exchange Square complexes, trades at about 16 times this year's earnings per share in Singapore, according to Bloomberg data.

APG managed pension assets of about 240 billion euros (S$437 billion) as at Dec 31, according to its website. Swire Properties picked the Dutch fund manager as an investor because of its understanding of the property market, the two people said.

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

'What will set it apart from the Hong Kong developers is that it will be a pure property play,' said Mainfirst's Mr Sullivan. 'The others like Sun Hung Kai, Cheung Kong, Henderson all operate other businesses and hence have an element of a holding company discount. Swire is looking to unlock some of that.'

Hong Kong IPOs raised HK$31.1 billion so far this year, 13-fold more than the same period last year when the global credit crunch sapped investor demand for new stocks, according to Bloomberg data.

Swire Properties' will be the second real estate IPO in Hong Kong this year, after investors turned cool towards 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 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 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.

Swire Properties' IPO is to be priced on May 7 and the stock will start trading around May 14, said three of the people. -- Bloomberg

Source: Business Times, 27 Apr 2010

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