Franshion Properties turns to Hong Kong spin-off after failed bond sale attempt

Developer will be the first firm to seek capital through a spin-off this year following the scrapping of similar plans by two HK peers

PUBLISHED : Wednesday, 12 March, 2014, 1:26am
UPDATED : Wednesday, 12 March, 2014, 5:20am

Mainland commercial property developer Franshion Properties (China) will be the first company to do a spin-off listing this year after it scaled back a plan to raise capital in the tepid bond market.

Franshion's fundraising plan is seen as an effort to swiftly raise cash and tame concerns over its gearing and cash flow following the acquisition of a prime Shanghai site for 10 billion yuan (HK$12.6 billion) in January.

Its move comes after two local property giants, New World Development and Hopewell Holdings, scrapped their spin-off plans last year amid continued investor concerns over real estate stocks.

Franshion turned its focus to a spin-off after failing to raise capital in the offshore US dollar market, said two people with direct knowledge of the firm's financial condition. They said the fresh capital should fill the company's war chest for the acquisition of prime land in major cities such as Shanghai and Beijing.

"China's current liquidity crunch and the unfavourable condition in the Asian bond market prompted the property firm to raise costly capital in the equity market," said one of them. "The mature hotel assets [to be listed] may suggest a selling signal at peak level."

According to Jones Lang LaSalle, the average room rate of five-star hotels in major mainland cities dropped 5 per cent last year because of lacklustre demand from international visitors.

Franshion chief executive Li Congrui said the company planned to spend 15 billion yuan buying land this year, focusing on first-tier cities and the Pearl and Yangtze deltas.

Analysts said Franshion management originally considered selling investment-grade dollar bonds as a quick and easy way to raise money as it could leverage parent Sinochem Group's state-owned background.

Sinochem Group, which holds Sinofert, Far East Horizon and Sinochem International, raised a combined US$500 million through two investment-grade bond issues last year for capital spending in real estate. It is the mainland's largest fertiliser trader and fourth-biggest oil company.

Shares in Franshion have dropped 12 per cent in six months. The stock has been a casualty of the skittish market amid disappointing macro data from the mainland, including a sharp drop in February exports.

The listing is expected to raise at least US$500 million through a Hong Kong float, which comprises six operating hotels and two under construction in Wangfujing in Beijing and Lijiang in Yunnan province. All the hotel assets are five-star brands in prime locations, including Westin and JW Marriott.

Franshion said it would maintain a 51 per cent stake in the spin-off, showing it intends to retain control even as it raises capital.