Mainland developer Sunac China’s property management arm seeks at least US$1 billion in Hong Kong IPO, say sources

Sunac Services Holdings, the property management arm of the mainland’s fourth-largest developer Sunac China Holdings, is looking to raise at least US$1 billion in a Hong Kong listing, joining a slew of companies who have launched IPOs recently, according to people familiar with the transaction.

The company has already started pre-marketing activities to potential institutional investors, with plans to use the initial public offering proceeds to fund expansion and acquisitions, these people said.

The deal’s joint sponsors, HSBC and Morgan Stanley, were not immediately available for comment.

Shimao Services, the services arm of Shimao Group raised HK$9.8 billion (US$1.26 billion), while KWG Living mopped up about HK$3 billion, with both companies making their debut on Friday. KWG Living’s shares plunged 22.9 per cent to HK$6.08, while Shimao Services closed unchanged at its listing price of HK$16.6 after dipping nearly 10 per cent to HK$15.

China Evergrande, the world’s most indebted property developer, has also applied to the Hong Kong stock exchange to spin-off and list its Evergrande Services unit, targeting to raise at least US$1 billion in December at the earliest, according to people familiar with the matter.

The stock market fortunes of these property management companies have been a roller-coaster ride this year as the favourable trading conditions in the first half have mostly vanished. The average stock price of some 30 property management companies listed in Hong Kong surged by 68 per cent between January and August, but they have since declined by more than 30 per cent, according to research from Jefferies Hong Kong.

“[We see a] slim chance of valuation rebound to previous ‘overheated’ level in the near term and it would likely turn quiet after the listing of Evergrande Services in January,” said Stephen Cheung, analyst with Jefferies. “Although developers would continue to spin-off and list their property management arms given the current tight credit [in China], we believe these potential IPOs would likely be priced at a discount to those listed this year.”

Other analysts like Lung Siu-fung of CCB International Securities said that the recent sharp share price correction in the sector was mainly due to retail investors’ attention swinging to mega IPOs like Ant.

China’s struggling home builders are looking to cash in on the profitable parts of their business amid a housing market slowdown this year. Still, of the 70 Chinese property developers that Moody’s rates, it expects 55 of them to see revenue growth pick up during the second half this year as the disruption from the coronavirus recedes.

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For the full year, Moody’s expects a 14 per cent revenue growth for these 55 developers, down from 24 per cent in 2019. Contracted sales are expected to grow just 3 per cent this year, from 22 per cent in 2019.

Apart from providing basic property management services, such as security, cleaning, repair and maintenances, Sunac Services has also diversified into value-added services such as consultancy and marketing supporting services to the developer. These services accounted for about 38 per cent of its total revenue of 1.79 billion yuan (US$267.6 million) for the six months to June, according to its prospectus.

Meanwhile, its first-half net profit quadrupled to 250.8 million yuan, from 53.6 million yuan a year ago.

Sunac Services focuses on first and second-tier cities in China, and manages 660 property projects with a total contracted gross floor area of 232.1 million square metres across 29 provinces, autonomous regions and municipalities.