Dalian Wanda may trim IPO size

Wanda Plaza, a residential-commercial complex developed by Dalian Wanda Commercial Properties Co, gets ready to open in Chengdu, Sichuan province on Oct 31. The firm owns and manages 89 such shopping malls across the country. PROVIDED TO CHINA DAILY

Real estate developer Dalian Wanda Commercial Properties Co is likely to trim the size of its initial public offering in Hong Kong amid fresh concerns about rising debt levels and foundering sales for mainland developers.

The company, a unit of billionaire Wang Jianlin's Dalian Wanda Group Co, got the IPO green light from the Hong Kong stock exchange on Monday, market sources said. A Bloomberg report cited an unidentified source as saying Dalian Wanda is planning to raise $4 billion by offering 15 percent of its outstanding shares to the public. Earlier, the market had expected the size of the company's float to be about $10 billion.

The reduced listing plan shows that the Dalian Wanda management are unhappy with the low valuation of its shares, especially at a time when capital flows from Hong Kong to the United States markets is expected to surge after the end of the quantitative easing program.

"The (mainland property) sector is clouded by high risks and slow growth," a senior investment banker with a State-owned lender in Hong Kong said on condition of anonymity. "It (Dalian Wanda) should come to terms with the reality and set the offer price for its shares accordingly," he said.

Wanda Commercial Properties said in its preliminary prospectus filed with the Hong Kong Exchanges and Clearing Ltd that approximately 90 percent of the net IPO proceeds will be used to finance the development of 10 projects — the Wanda Plazas (residential-commercial complexes).

The company, founded in 2002 in northeastern China, owns and manages 89 shopping malls and 48 hotels across the nation. It had a gearing, or debt to equity, ratio of 87.8 percent at the end of June, in addition to 73.7 percent of land reserves under development, according to the preliminary prospectus.

"I feel they are under pressure to raise capital, and may sacrifice price for timing," the investment banker said.

Although market sentiment does not seem to be that supportive for mainland-based real estate companies, there are those who believe that the property market is recovering and investors should prepare for a rebound in 2015.

"No doubt, Wanda is a leader of the property industry and should be among the first to benefit from a general recovery that is backed by the government's monetary policy easing. I believe that Dalian Wanda's offer will find its fans among Hong Kong institutional investors," said Hou Like, an analyst with Guotai Junan Securities Co Ltd.

Hou said that the real estate industry will be a major engine for the expected equity rally in 2015, as many developers are securing fresh fund infusions to strengthen their balance sheets.