China developers seek cash in IPOs and spin-offs

More mainland property developers are seeking to raise capital through initial public offerings and spin-off units in Hong Kong as the Covid-19 pandemic takes a toll on their cash flow.

KWG's (1813) property management arm KWG Living has filed an IPO application in the Hong Kong stock exchange to raise more than US$200 million (HK$1.56 billion).

The Guangzhou-based developer holds around 97.22 percent stakes in KWG Living, but will not retain any interest in the company after the spin-off.

Jefferies believes KWG could complete the floatation in the fourth quarter and estimates the value of the subsidiary to be HK$12 billion. The investment house lifted the target price of KWG to HK$15.38, as KWG Living's prospectus showed better-than-expected operational data that is yet to be fully reflected in KWG's current price-to-earnings ratio.

Meanwhile, Agile Group (3383) plans to spin off A-City Group, which provides ecological landscaping and interior decoration services, in Hong Kong.

After the spinoff, Agile will control not less than 50 percent in A-City, which will remain as a subsidiary.

Jefferies estimates the fair value of A-City to be HK$7.5 billion, and expects the market to react positively to the spin-off.

But it warns the 20 percent earnings contributions from third-parties of A-City would limit the valuation boost to its parent and it cautious on Agile's medium-term outlook.

In other news, Ganglong China Property kicked off bookbuilding on Wednesday for its Hong Kong IPO that could raise up to HK$1.64 billion.

The Shanghai-based developer plans to offer 400 million shares at an indicative price range of HK$3.6 to HK$4.1. It has attracted two cornerstone investors, including Peter Lee Ka-kit, cochairman of Henderson Land Development (0012), to subscribe to shares worth HK$80 million.

Lee also is a cornerstone investor of Redsun Services, the property management arm of Redsun Properties (1996). Redsun Services launched its IPO earlier this week to raise as much as HK$430 million.

Ganglong China is set to price the deal on July 3 and make a market debut on July 15.