Chinese hotel development group Jinmao Investments and Jinmao (China) received a lukewarm welcome in its debut on the Hong Kong stock exchange yesterday, raising HK$3.2 billion ($414 million) in an undersubscribed IPO.
The spin-off of hospitality assets from mainland developer Franshion Properties was priced at HK$5.35 ($0.69) per share, which was at the bottom of the range predicted when the subsidiary of state-run conglomerate Sinochem was marketing the offering earlier this month.
According to a story in the Hong Kong press, retail investors applied for only 30 percent of the 60 million units on offer, with the remaining 70 percent getting pushed forward into the institutional tranche. Both the retail and institutional tranches ended the day undersubscribed.
The tepid response to the offering came despite the high profile of the company’s portfolio of eight five-star hotels, including Shanghai’s Grand Hyatt, as well as the whole of the iconic Jinmao Tower office building (which houses the Hyatt) in the Lujiazui financial district.
Jinmao IPO Follows Scuttled Bond Sale
Franshion apparently decided to pursue the Jinmao IPO after a planned bond sale was scuttled earlier this year by poor market sentiment and a negative response by investors to Franshion’s aggressive purchases of residential land earlier this year.
In January Franshion spent RMB 10 billion to acquire prime residential land in Shanghai, gaining it the mocking title of “land king” from other developers. The company’s stock subsequently slid about eight percent to as low as HK$2.22 per share before recovering in the run up to the Jinmao offering.
According to statements made before the IPO by Franshion CEO Li Congrui, the company intends to use the proceeds from to make further land purchases. Earlier this year, Li had said that Franshion planned to spend RMB 15 billion buying more land in prime locations in 2014.
Franshion Marketing Equity in a Down Year
The IPO comes in the midst of one of the most challenging years for real estate sales in China, and was held on the same day that a Hangzhou developer collapsed under the weight of RMB 2 billion ($321 million) in debts.
Four cornerstone investors took up $40 million of the offering under a six-month lock up including Warburg Pincus, Shanghai Construction, American Pacific International Capital chairman Gordon Tang and his wife Chen Huaidan.
After the IPO Franshion will continue to own 70 percent of Jinmao. The offering was underwritten by Deutsche Bank, DBS, HSBC, Morgan Stanley and Standard Chartered.