Swire Properties Ltd, having kicked off the roadshow Monday for its Hong Kong IPO, may have difficulties in drumming up support from investors for its shares, as it is expected to price its shares at a relatively high level amid gloomy market sentiment, some analysts believe.

Blue-chip conglomerate Swire Pacific Ltd, parent of Swire Properties, said Sunday that it has set an indicative price range for the IPO of Swire Properties at HK$20.75 to HK$22.90 per share, translating into an 8.3 percent to 16 percent discount to the estimated net asset value of the property unit at the end of 2010.

"Even though the indicative price range set by Swire Properties is still within reasonable levels, compared with its listed peers, the company may have set the price range a bit too high." said Eric Yuen, head of research from Daoheng Securities.

Yuen said a higher discount to the company's net asset value would make the stock more attractive, as the lower price is more approachable to the investors.

"Most property plays are trading at about a 20 percent discount to their net asset value currently, bigger than the discount offered by Swire Properties. Another local property company, Wharf, which generates most of its profit by leasing offices as Swire does, is also trading at a bigger discount," said Yuen.

Swire Properties didn't disclose the number of shares to be sold. People familiar with the matter said the company plans to sell 910 million new shares, or 13.8 percent of its enlarged share capital, seeking to raise as much as HK$20.8 billion. The offering has an overallotment option of an extra 136.5 million existing shares

"The timing is also bad. The property sector in the Hang Seng Index has slid all the way down, as Hong Kong developers are haunted by a series of government measures customized for them in the past few weeks," said Yuen.

Financial Secretary John Tsang recently announced measures to curb possible price manipulations by developers in new project launches, including requiring developers to disclose transactions involving board members within five days of the transaction, to release a price list three days ahead of launching a project and to put up more flats for sale in the initial launch of a project.

Marco Mak, analyst with Taifook Securities Group, however, believes the core holding should be attractive to institutional investors, as there have been very few IPOs by local developers in recent years.

"Once listed, Swire Properties will immediately become the third- largest property company in the local bourse. As its major income, office rents are stably rewarding, and outlook for the local property giant is still promising this year," Mak told China Daily.

Swire Properties develops and manages commercial, retail, hotel and residential properties. It is the biggest commercial landlord in eastern Hong Kong Island. Its buildings include TaiKoo Place and several house companies, which also own Pacific Place shopping and office complex in Admiralty.

Reports have said that Swire Properties' IPO, to be priced on May 7 with trading debut set at a week after, will be the largest in Hong Kong since the November 2007 share sale of China Railway Group Ltd.

China Daily

(HK Edition 04/27/2010 page2)