Developers push ahead
Ill winds sweep listings market but mainland property players among those sticking with fundraising plans
Concern the US Federal Reserve will wind down its bond buying program and the International Monetary Fund's latest warning about mainland government debt are not helping market participants looking to take firms public. But cash-strapped mainland developers are forging ahead with their plans.
Investors are in a cautious mood after Fed chairman Ben Bernanke hinted he might reduce the US central bank's US$85 billion-a-month bond-buying programme. The underlying message was clear: all good things must come to an end.
Meanwhile, the IMF urged the mainland's provincial and city-level governments to be disciplined. The agency's first deputy managing director, David Lipton, warned that headlong investment and rapid credit growth might threaten economic sustainability.
In spite of the mounting headwinds, at least eight initial public offerings remain on track. These include Wuzhou International, a mid-sized mainland property developer, which began a pre-marketing roadshow last week for its proposed US$220 million listing.
Wuzhou International is one of many small mainland developers tapping the market with inexpensive valuations. The Wuxi-based firm plans to sell 1.14 billion shares at an indicative price of between HK$1.18 and HK$1.50 per share. That is a discount to net asset value of up to 70 per cent - a distressed level of pricing that reflects the fact that many listing hopefuls have failed to outline a differentiated business model competitive in the current environment.
Wuzhou's gearing ratio - a measure of a company's financial leverage - rose sharply to 145.9 per cent last year from just 37 per cent in 2010, while its net debt to equity ratio jumped to 100 per cent from 16.9 per cent. These figures suggest that the company's expansion is heavily reliant on debt financing. Its total outstanding bank loans and other borrowings rose to 2.4 billion yuan (HK$3 billion) from 322 million yuan for the same period, according to its listing documents.
Richard Seaward, head of intuitional equities at Sun Hung Kai Financial, said weak investor sentiment meant new listings were required to price at conservative multiples in order ensure a successful debut.