NWD set to spin off China property arm
New World Development (NWD) has won approval from the Hong Kong stock exchange to spin off its mainland property unit in a move that aims to raise between US$500 million and US$600 million.
New World China Land is expected to be listed in the middle of next month, barring a dramatic turnaround in market conditions.
It is believed to be one of the biggest mainland property flotations in Hong Kong in terms of market capitalisation, land bank and - probably - proceeds to be raised.
Sources said approval had been obtained from the exchange at a hearing on Thursday.
The timing appears favourable given an expected improvement in sentiment towards the mainland property market following Beijing's interest-rate cuts this week.
The mainland cut deposit rates by an average one percentage point and lending rates by an average of 75 basis points from Thursday in an attempt to boost the slowing economy.
'The rate cut in China will boost sentiment in the mainland property market,' Vickers Ballas HK analyst Herbert Lau Chung-kwan said.
That could help New World's spin-off of its mainland unit, he said.
The market capitalisation of New World China Land is expected to be about US$2 billion.
New World China Land has about 65 projects mainly in five big cities - Beijing, Guangzhou, Tianjin, Shenyang and Wuhan - with a total gross floor area of 215 million square feet.
Its portfolio includes government-subsidised low-cost housing projects, city redevelopment projects and conventional properties.
NWD previously said that the planned listing would streamline its business, leaving the holding company to focus on the Hong Kong property market.
It is also aimed at reducing the group's high gearing.
NWD's net debt to equity ratio is 49.11 per cent, which it hopes to cut to less than 40 per cent.
New World China Land issued US$350 million in mandatory convertible bonds in 1996. These can be converted into shares in the unit in an initial public offering before they mature in December this year.
Some analysts raised concerns over the profitability of the mainland property arm, which contributed only about HK$200 million in last year's financial results, the same as in 1997.
They said the unit would not come to the market with a track record of profitability to justify its expected market capitalisation.
However, they said the flotation would attract investors through a big discount to net asset value.
Meanwhile, NWD's listed arm New World Infrastructure yesterday announced it had agreed to raise its equity interest in Internet concern China.com to more than 20 per cent. No details of the deal were unveiled.
The deal, which is seen as part of a restructuring ahead of a planned listing for the Internet firm in the United States, will make NWI the largest shareholder in the company.
NWI holds about 12.7 per cent of China.com's holding company, China Internet.