Warburg Pincus-backed logistics real estate platform ESR has relaunched its IPO in Hong Kong, aiming to bring in a larger haul of cash after an earlier attempt stumbled in the face of street protests and tepid investor demand.
The developer and fund manager stands to raise HK$10.98 billion ($1.4 billion) from investors in the enlarged share sale, according to a statement from the company, provided that shares are taken up at the mid-point of the indicative pricing range.
With one of Canada’s largest pension fund managers buying up 42 percent of the total offer, the new target for ESR’s management is 13 percent higher than what the company would have taken in from the share listing at the top range of its earlier proposal, after the logistics real estate platform showed rising revenues and profits during the first half of 2019.
As the company began its IPO roadshow in Singapore today and with the retail portion of the offering kicking off in Hong Kong tomorrow, should ESR meets its fund raising goals, the sale would rank as Hong Kong’s second-largest IPO of the year, following AB InBev’s $5 billion float of shares in its Asia Pacific unit last month.
The listing would also be the largest float of a real estate firm on the HKEX since Dalian Wanda raised $1.5 billion in its 2014 debut, according to Mingtiandi records.
The share sale, which had originally been scheduled for June before a combination of street protests and investor skepticism caused ESR’s management to pull the offering, would value the Asian logistics specialist at from $6.27 billion to $6.74 billion following the IPO, according to the company statement.
OMERS Takes 9% Cornerstone Stake
The supersized offering is due in part to increased investor demand with Canadian pension fund manager, OMERS Administration Corporation, signing up for 9 percent of the enlarged share capital as a cornerstone investor, according to the statement from ESR. The company did not disclose any potential cornerstone investors before pulling back from its earlier listing attempt four months ago.
At the mid-point of ESR’s indicative share price range of from HK$16.2 to HK$17.4, OMERS would be paying HK$4.591 billion for its stake in the Hong Kong-based firm.
Overall, ESR proposes to sell 654 million shares through the offering, with 42.9 percent of those newly-issued primary shares and 57.1 percent secondary shares purchased from existing investors. The total number of shares included in the sale at the company’s enlarged capitalisation will be equal to 21.5 percent of its total stock.
In contrast to the current proposal, the initial IPO plan, which was pulled on 13 June in the face of street protests and reports of lukewarm investor demand, would have drawn only 42 percent of the shares being made available from existing investors, according to company filings.
The new proposal allows for the offer size to be adjusted, depending on conditions, which would enable ESR, which manages $20.2 billion in warehouses, land and other assets across Asia Pacific, to sell an additional quantity of secondary shares equal to 15 percent of the pre-set allocation.
Pricing and Valuation Stay Steady
The target price range for the company’s stock remains consistent with the initial IPO attempt which also aimed for HK$16.2 to HK$17.4 per share. The valuation for the company, which as of the end of June managed 30 private third-party pooled investment vehicles and two REITs listed on the Singapore exchange, also stayed steady at from $6.27 billion to $6.74 billion following the IPO.
After starting the road show in Singapore today, and hosting a media conference in Hong Kong via video link, ESR’s management, investors and bankers are bringing the share sale back to the company’s home city on Tuesday, before continuing their outreach to institutional investors and brokers in New York and London.
As with the earlier listing effort, CLSA and Deutsche Securities Ltd are serving as joint sponsors for the share sale, with Morgan Stanley Asia, Deutsche Bank, Citigroup Global Markets Asia, Credit Suisse (Hong Kong) and Goldman Sachs (Asia) serving as joint global coordinators for the proposed listing.
Reaping Benefits of 2019 1H Performance
While protests still dominate the headlines in Hong Kong, ESR, which has projects in mainland China, Japan, Korea, India, Singapore and Australia, has some encouraging financial news that may have helped convince investors such as OMERS to look past the situation on the streets of the Asian financial capital.
ESR’s results for the first half of this year, which were released with an updated prospectus when the Hong Kong-based firm refiled for its IPO last month, show income for the company’s operations rising to $155.76 million for the period – up almost 40 percent from the $93.69 million it recorded during the first six months of 2018.
During that same interval the company’s Australian unit completed its $522 million acquisition of Australian real estate investment firm Propertylink and the group also acquired the manager of Singapore-listed Sabana REIT through a S$62.2 million ($45.7 million) deal.
From January through June of this year ESR also notched profits of $84 million – up 32 percent from the first half of 2018.
Proceeds Allocated to Pay Down Debt, Build New Projects
Reflecting its genesis from the 2016 merger of Shanghai-based e-Shang with Japan-focused developer Redwood Group, e-Shang co-founder Jeffrey Shen serves as co-CEO of ESR alongside former Redwood executive Stuart Gibson, with Warburg Pincus managing director Jeffrey Perlman appointed as the firm’s non-executive chairman.
Going into the share sale, Warburg Pincus owns 37.5 percent of the company, according to a presentation to investors, with the company’s founders and senior management holding a combined 24.9 percent stake.
In its prospectus, ESR, which is also backed by South Korean conglomerate SK Holdings, a logistics unit of mainland e-commerce giant JD.com and Dutch pension fund manager APG, says that the company will use 71.7 percent of the IPO proceeds to pay down existing bonds, as well as to redeem preferential shares issued in 2016.
The remaining 28.3 percent of the proceeds are dedicated to development of logistics properties on ESR’s own balance sheet and making co-investments in the company’s managed funds and investment vehicles
As of 30 June, ESR had 8.5 million square metres (91.5 million square feet) of completed properties on its balance sheet, with another 4.4 million square metres of sheds under construction, and another 2.4 million square metres in its pipeline to be built on land held for future development.