Well, finally one of the several mainland property developers to have listed in Hong Kong over the past couple of weeks had a decent debut. After having shelved its earlier plans to list, Evergrande Real Estate Group finally made it, and perhaps a couple of big Hong Kong names attached to the ticket might have helped.
The Guangzhou-based residential developer, which raised US$722 million in its initial public offering, rose 34% on its first day of trade on the Hong Kong bourse on Thursday, closing at HK$4.70 against an IPO price of HK$3.50. Granted the stock did close down 2.13% at HK%4.60 on Friday, champagne corks must have been flying when you compare the first day performances of recent mainland property plays: Glorious, China South City and Yuzhou all closed between 10% and 20% lower on first day trade.
It’d be hard not to agree with the party line analysts are taking – if you have a surfeit of mainland property IPOs, investors are going to start getting picky. I remember all the carfuffle last time Evergrande tried to tap the markets for cash (yet another sorry developer’s IPO prospectus propping up the broken leg of the desk) but renewed guarantees from Cheng Yu-tung, chairman of New World Development, and Chinese Estates Holdings’ chairman Joseph Lau Luen-hung, to throw in US$50 million each as cornerstone investors no doubt helped tip the balance in Evergrande’s favor down in Central.
Some doubts had lingered over the fact that although Evergrande raked in over US$3.36 billion in sales over the first nine months of the year, a good proportion of its whopping 50 million sq. m landbank is found in locations which are a fair cut below what could be described as prime.
But having learned about investor sentiment and the importance of a decent discount in a choppy market since last time the prospectuses were handed out, Evergrande set their starting price at the middle of its indicative range which undoubtedly made the float more appealing.
More appealing than the bricks and mortar that Evergrande flogs is the paper. According to the Hong Kong Economic Times, the developer’s chairman, Hui Ka-yan, will now overtake BYD’s chairman Wang Chuanfu as the country’s wealthiest man with a post-float net worth of US$6.2 billion. Nice.
However, will Evergrande’s Hong Kong listing be mainland developers’ swan song of 2009? Investors must be more than aware of the whispers in Beijing corridors of a pulling of some preferential property policies, both on the supply and demand side of the market, as we totter toward year end. For the developers that have already postponed their IPO, like Excellence did last week, or lowered the size of their listing, like Mingfa already has, nails must be bitten to the quick.