Evergrande Property's Hong Kong IPO meets with lukewarm reception, raises $1.8 billion

HONG KONG (Reuters) – Evergrande Property Services Group’s Hong Kong IPO priced at the lower end of expectations to raise $1.8 billion, three sources said, the tepid demand underscoring concerns about the financial health of its debt-laden parent.

FILE PHOTO: An exterior view of China Evergrande Centre in Hong Kong, China March 26, 2018. REUTERS/Bobby Yip/File Photo

The offering comes after a run of setbacks for China Evergrande Group, the country’s second-biggest and most indebted property developer with some $124 billion in borrowings as of June.

These include a secondary share sale last month that raised only half its initial target and the dropping of a plan to inject most of its property assets into a Shenzhen company via a backdoor listing.

Hong Kong’s second-biggest IPO this year priced at HK$8.80 per share, compared to the marketed range of HK$8.5 to $9.75 each, three sources with direct knowledge of the matter said, declining to be identified as the information has not yet been made public.

Evergrande Property Services declined to comment.

At that price, it is valued at HK$95.06 billion ($12.3 billion). Half the funds raised will go to the company with the other half earmarked for the parent firm.

A greenshoe option also exists, which if exercised would take the size of the stake sold from 15% to 17%.

Evergrande has been scrambling for cash as Beijing tackles what it considers excessive borrowing in the real estate development sector with planned new debt-ratio caps.

But both credit and sell-side analysts have said they do not see imminent risks of default, noting Evergrande has various fund raising channels including domestic bond issuance and plans to list other units.

Although it was on the hook for as much as $19 billion to investors in the planned backdoor listing, it has managed to reach agreements with most investors who will instead keep the equity in property assets rather than demand repayment.

UOB Kay Hian director Steven Leung said that investors had become somewhat cool to property services-related listings, turned off by a slew of debuts and high valuations.

“So Evergrande has to face reality and set a lower price in the hope of getting a higher trading price after IPO,” he added.

Three of Evergrande Property’s rivals recently priced towards the middle or upper end of ranges flagged during their bookbuilds.

KWG Living Group Holdings Ltd priced at $7.89 compared to its $7 to $8.13 range, Sunac Services Holdings Ltd was set at $11.60 compared to a $10.55 to $12.65 range while Shimao Services Holdings Ltd priced at $16.6 after indicating a range of $14.8 to $17.2.

The IPO and a previous share sale by Evergrande will reduce its stake in Evergrande Property to around 59%. Evergrande Property is expected to list on Dec 2.

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