Spin-off plan sends Swire shares to 20-month high

PUBLISHED : Wednesday, 04 November, 2009, 12:00am
UPDATED : Wednesday, 04 November, 2009, 12:00am

Swire Pacific's planned HK$30 billion flotation of its property business sent shares of the blue chip to a 20-month high yesterday.

The British hong said on Monday that it was considering a separate listing for Swire Properties, which was first spun off in 1977 but privatised seven years later. The spin-off this time could be the city's biggest-ever property flotation.

Swire Pacific at one stage rose to HK$101, the highest since February last year, before closing at HK$96.05, up 1.1 per cent. By contrast, the Hang Seng Index fell 1.8 per cent.

'The spin-off plan will be positive for Swire as a pure property play will appeal more to property investors,' said Conita Hung Lai-ping, the head of equity markets at Delta Asia Financial.

A listing would provide a platform for Swire Properties to raise funds to finance land acquisitions in Hong Kong and on the mainland, she said.

Yesterday, Swire sent investment banks a 'request for pitches' to work on the initial public offering. No formal proposal has yet been put to the stock exchange.

Credit Suisse analyst Cusson Leung wrote in a research note that he expected the spin-off would take place in the first half of next year.

'The spun-off entity will be better than Hongkong Land Holdings, which is trading at a 10 per cent discount to net asset value,' Leung wrote in the report.

'Investment properties will account for 86 per cent of the spun-off entity, which will make it a rather pure quality landlord play in Hong Kong.'

In addition, Swire Properties last year set up a hotel business. Its first hotel, the Opposite House, in Beijing was opened last year and was followed by Upper House at Pacific Place in Admiralty early last month. Its third venture, East, in Quarry Bay will open early next year.

Bank of America Merrill Lynch upgraded Swire from 'underperform' to 'buy' on a possible unlocking of value through the spin-off.

'We think Swire may be renewing its focus on property development in Hong Kong. Any such move would allow Swire to benefit from its premium brand name,' wrote Karl Choi, an analyst at Bank of America Merrill Lynch.

Merrill raised Swire's price target to HK$110 from HK$75.

A research note by JP Morgan, however, said the proposed spin-off would result in decreased investor demand for Swire. Many investors hold Swire due to its property assets, which comprise 75 per cent of the group's gross asset value.

'They may prefer to invest in the property assets directly if they are separately listed,' said the report.

Firm foundations

Swire spin-off could be city's biggest property flotation

The portion of investment property assets a listed Swire Properties will hold: 86%