Redco Properties Group, a small mainland developer focusing on second and third-tier cities, plans to raise up to HK$1.04 billion through an initial public offering that starts today.
The Shenzhen-based developer will issue 400 million shares at between HK$2.10 and HK$2.60, with trading due to start on Hong Kong's main board on January 30.
The net proceeds of the offering, after listing fees and expenses, are estimated at HK$865 million if the shares are priced at the midpoint of HK$2.35.
The company planned to use about 90 per cent, or about HK$778.5 million, of the net proceeds to buy land, while the remainder would be spent on company operations.
The developer works mainly in second and third-tier cities such as Tianjin, Yantai, Jinan, Xianyang, Hefei, Nanchang and Quanzhou. At the end of last year, Redco bought a site in Shen-zhen for 980 million yuan (HK$1.2 billion).
"We will seek development sites in the cities that have strong potential for growth in GDP and population. We will consider expanding further into first-tier cities," Redco vice-president Xu Xiaojie said yesterday.
"The acquisition in Shenzhen means we are entering into the Peal River Delta area and also a first-tier city."
He said the firm had no plans to move into lower tier cities.
By the end of last year, the developer owned a land bank of about 3.96 million square metres. It has also signed memorandums of understanding with local governments in Tianjin, Yantai and Nanchang for development sites that may provide a total gross floor area of more than five million square metres.
Liang Wanchan, Redco's financial department general manager, said the firm had achieved a stable growth in profit margin from 2010 to 2013. "We are optimistic on the profit margin as our land cost is lower than that of other developers," she said. "The land cost is only 9 to 15 per cent of the selling prices of our projects. We have also built up a long-term partnership agreement with construction companies in order to maintain a stable construction cost. It helped us to achieve a lower development cost."
Redco made a net profit of 65.77 million yuan in 2012, down 23 per cent from the previous year. But its net profit for the nine months to September last year reached 270 million yuan, 723 per cent more than the same period in 2012.
ICBC International Capital is the sole sponsor of the offering, while the firm and Kingston Securities are the joint global co-ordinators.