Sky City Builder Broad Homes Launches HK$1.2B IPO in Hong Kong

Prefabricated construction firm Changsha Broad Homes Industrial Group kicked off an initial public offering in Hong Kong today that could value the company at HK$6.6 billion ($840 million).

The Changsha-based company, which was founded a decade ago by heating and refrigeration tycoon Zhang Yue and his younger brother Zhang Jian, is seeking to raise raise up to HK$1.5 billion through the sale of approximately 122 million shares at an indicative price range of between HK$9.68 and HK$12.48 per share.

Should the manufacturer of precast concrete parts for prefabricated buildings manage to sell all the shares included in the offering at the mid-range price of HK$11.08, Broad would bring in HK$1.2 billion from the offering.

The launch of the IPO comes six years after the group’s Broad Sustainable Building launched a project to construct the world’s tallest building – dubbed Sky City. That attempt to build an 838-metre-tall prefabricated tower in just ninety days was halted by authorities in 2013 over safety concerns.

Trading to Begin Next Week

The company, which is nearly 75 percent held by Zhang Jian, who also serves as Broad Homes Industrial’s chairman, will be listed on the Hong Kong exchange under the ticker symbol 2163, with shares scheduled to begin trading on 6 November. Zhang Yue does not appear in the company’s prospectus as a shareholder or director of the company.

Despite having made headlines for its construction projects such as producing a 57-storey, tower in just 19 days in 2015, Broad in recent years has focused on supplying prefabricated parts and materials to third-party builders.

In 2018 the company was China’s largest manufacturer of pre-cast concrete parts in terms of revenue, with a market share of 38.3 percent, according to a study commissioned by Broad, with the construction firm having brought in a total of RMB 2.2 billion last year.

Broad’s 2018 revenue marked a nearly 14 percent increase from the RMB 1.9 billion that it brought in during 2017, while adjusted net profit for 2018, excluding any gains on disposals of subsidiaries, fell from the previous year’s RMB 157 million to RMB 98 million in 2018.

As of April 30, 2019, Broad had 15 wholly owned pre-cast concrete factories in China, according to the prospectus.

The pre-fabricated technology firm’s IPO officially commenced in Hong Kong today, with pricing for the shares expected to be established on 30 October, and allocations to subscribers due to be completed by 5 November.

CICC and China Securities International are the joint sponsors of the offering as well as taking on the role of bookrunners alongside with CMB International, ABC International and CCB International. Led by Beijing-based partner Hang Wang, international law firm Baker McKenzie advised Broad on the global offering and proposed listing, according to a statement from the company.

Cornerstone Investors Take 35% of Offering

Cornerstone investors including Shenzhen-listed engineering company Zoomlion International Trading, state-owned Changsha Changtou Industry Investment Co and Gemdale Corporation subsidiary Evergreen Commercial Limited have already agreed to purchase a combined HK$484 million in shares, according to Broad’s prospectus.

Based on the mid-point price of HK$11.08 per offer share, the total number of shares to be taken up by the trio of cornerstone investors will be approximately 43 million, or around 35 percent of the global offering.

Zhang Jian’s existing 75 percent shareholding, which he holds directly and indirectly through companies that he controls, will be slimmed down to 56 percent upon completion of the offering.

IPO Proceeds to Fund Expansion in China and Overseas

The company intends to use just under half of the net proceeds to construct factories in provincial capitals including Wuhan, Jinan and Zhengzhou and upgrade its existing manufacturing centres to help meet demand during peak periods.

A quarter of the capital gained will be pumped into research and development to hone the group’s autoclaved aerated lightweight concrete technology, while a fifth has been earmarked for business expansion into overseas markets, targeting Europe, North America and the Persian Gulf with its prefabricated villas.

Shifting Focus to Manufacturing

With the site of the Sky City dream project remaining undeveloped long after Broad’s projected completion date, the company’s business model has been evolving from builder to supplier.

Until 2016, more than 50 percent of Broad’s construction business came from construction contracts, with Broad Homes employed as the contractor on projects that used its precast concrete modular technology.

Last year, the bulk of the company’s revenue came from producing and selling the company’s proprietary construction system, while only 8 percent was derived from providing construction services.

The company, which has become a leading proponent of sustainability, said that the demand for prefabricated construction in China is being driven by rising labour costs and the government’s push for more sustainable building methods.