Longhu Real Estate plans up to US$1b IPO

PUBLISHED : Monday, 28 May, 2007, 12:00am
UPDATED : Monday, 28 May, 2007, 12:00am

Longhu Real Estate, a Chongqing-based luxury developer, is planning an initial public offering of up to US$1 billion in Hong Kong this year, capitalising on investors' appetite for mainland property plays.

The potential deal comes not long after Guangzhou-based developer Country Garden Holdings raised US$1.9 billion from an IPO, the largest by a mainland developer. Country Garden shares are up 26 per cent since trading began on April 20.

The Country Garden deal was massively oversubscribed with retail investors applying to buy 256 times the number of shares available and institutional investors wanting 90 times the number of shares on offer. That made it the third most popular IPO after shoe retailer Belle International Holdings and Industrial and Commercial Bank of China.

'The market still has an interest in mainland property developers especially those from Chongqing and Chengdu because western Chinese companies have tax benefits as the government is encouraging investment in the region,' said Kenny Tang, associate director at Tung Tai Securities.

The profit tax in the western part of the country is 15 per cent while companies on the more developed eastern seaboard pay a 33 per cent tax on profits.

The mainland property sector is shaping up to be one of the most frequent equity sellers with over half a dozen deals pending this year.

Hengda Real Estate, a property company with developments in Guangzhou, Sino-Ocean Real Estate, the property arm of Cosco International Holdings, and Shanghai Cred Real Estate could raise as much as a combined US$1.35 billion from initial public offerings, and more deals are planned.

Four developers raised US$1.8 billion in IPOs last year and their shares have risen an average 85 per cent so far.

The follow-on deals have also been active this year, with offers by Greentown China Holdings, Shimao Property Holdings and China Resources Land.

Developers are seeking funds to expand in the hope of escaping the negative effects of austerity measures to cool rising property prices that are expected to harm smaller players the worst.

Home buying in the mainland has risen as average salaries rise while overseas buyers are buying mainland property in hopes of an appreciation in the yuan.

Some investment banks including UBS, JP Morgan, Morgan Stanley and Merrill Lynch are vying for a mandate to arrange Longhu's IPO. Longhu declined to comment.

The company develops properties in Chongqing, Chengdu and Beijing, and its residential projects include the 320,000 square metre Xiyuan Longhu Garden and the 280,000 square metre Nanyuan Longhu Garden in Chongqing.

Commercial developments include Northern Paradise Walk, Chongqing's largest shopping mall.

The company has five projects planned, according to its website, such as a 3,000-unit residential development in Chongqing and a development of Spanish-style villas on Beijing's Wenyu River that will cover 190,000 square metres of land.

Longhu Real Estate also runs property management and administrative subsidiaries in the three cities. The company, which was set up in 1995, earned 3.6 billion yuan in sales last year, according to its website.

Strong demand

The Country Garden deal was massively oversubscribed

Rise in Country Garden shares since their trading debut on April 20: 26%