Mainland developer Sunac China proposes to spin off property services arm and list it in Hong Kong
- Sunac China will own at least 50 per cent stake in Sunac Services Holdings after the spin off and listing, according to IPO application
- Sunac Services, which made a profit of US$34.8 million last year, manages some 635 property projects in China
Mainland developer Sunac China plans to spin-off Sunac Services Holdings, its property management unit and list it in Hong Kong, with analysts expecting China’s struggling home builders looking to cash in on the profitable parts of their business amid a souring property market.
After the spin-off and listing, Sunac China will have an interest of not less than 50 per cent in Sunac Services Holdings, Sunac said in the initial public offering application filed late on Thursday evening.
“The company is optimistic about the future development and potential of the property management industry … the proposed spin-off will enable the spin-off group to have a separate fundraising platform,” said the mainland’s fourth largest developer by sales, chaired by billionaire Sun Hongbin, in the filing.
Although it is unclear the amount Sunac Services plans to raise from the IPO, analysts expect the company to raise up to US$1 billion, with the final size depending on market sentiment and investor appetite.
According to the application, the company reported an annual profit of 269.9 million yuan (US$34.8 million) last year, almost triple the profit in 2018. Its revenue meanwhile jumped 55.6 per cent to 2.8 billion yuan in the same period. The IPO is being led by HSBC and Morgan Stanley.
As of end of May, Sunac Services managed 635 property projects in China, with a total gross floor area under management of 100.6 million square metres, the filing showed.
Last Friday, China Evergrande, the largest home builder in China by sales, said that it too was considering a possible spin-off of its property management unit.
Currently some 25 property service companies are listed in Hong Kong, and so far this year 10 property management firms have submitted their IPO prospectus.
Analyst expect more mainland developers to raise cash from listing their service and management units this year as the housing market slows down in China.
“It is widely known that home sales will contract and property companies need something new and exciting to lure investors and raise more money,” said Lung Siu-fung, a property analyst at CCB International Securities.
In April, Moody’s downgraded the outlook for China’s property sector to negative, forecasting nationwide sales to fall by 5 per cent to 10 per cent in 2020.
“The property management sector is a star moneymaking machine,” said Raymond Cheng, property analyst at CGS-CIMB Securities. “The sector has a much higher valuation compared to the property sector as investors like the asset-light operation and stable cash flow.”
He added that more importantly the business is low risk as it is not subject to economic vagaries.
Cheng expects another five to six such companies to launch IPOs by the end of the year followed by another 10 next year.
