Dalian Wanda Group Chairman Wang Jianlin at the 'strike the gong' ceremony at the Hong Kong Stock Exchange on Tuesday to start the trading of Wanda Commercial's shares. But investors remain cautious toward the company's initial public offering amid an uncertain outlook for the mainland property market next year. Provided to China Daily

Huge debts, slow property sales blamed for the developer's poor IPO show

Dalian Wanda Commercial Property Co Ltd's shares fell 2.6 percent from their offer price to HK$46.8 apiece in the first day of trading in Hong Kong as concerns about the company's high gearing and slow sales had offset optimism about the recovery of the mainland's property market.

Shares in the Asia-Pacific's biggest initial public offering (IPO) this year opened flat at the offer price of HK$48 on Tuesday before dropping by as much as 8.8 percent to HK$43.8 each at one stage before recovering later in the day.

Dick Kay, a partner at international accounting firm Deloitte Touche Tohmatsu, said the poor performance of Dalian Wanda Commercial was due to uncertainties surrounding the mainland property market. "The share price of Wanda slumped amid concerns that the mainland property market expects may resume its downward trend," he said.

Wanda Commercial, the property development arm of Dalian Wanda Group controlled by Chinese billionaire Wang Jianlin, raised HK$28.8 billion ($3.7 billion) by selling 600 million shares at HK$48 apiece. The offer price was set at the upper end of the indicative range of between HK$41.8 and HK$49.6.

But the initial lukewarm response had prompted Wanda Commercial to scale back its much more ambitious original plan.

Fitch Ratings Ltd estimated that the proceeds from the IPO could help trim Wanda's net debt to slightly below 80 billion yuan from 101 billion yuan ($12.9 billion) at the end of June 2014 and reduce its leverage to just under 7 times from the peak of 10.8 times.

However, Fitch Ratings warned that any aggressive ramp up of property development in 2015 could lead to increased debt, and may result in a negative rating action.

Sufficient funds are important for Wanda's future development, stressed Kay at Deloitte. "The proceeds from the IPO have guaranteed Wanda's plans to be carried out at home and abroad effectively despite the decline of its share price," he added.

Wanda has said that the bulk of the IPO proceeds would be used to help fund the development of 10 malls across the mainland. Fitch predicted that Wanda's revenue will increase by an average of around 30 percent in each of the next two to three years.

"It has maintained a strong track record of timely delivery of projects, high occupancy rates and continued rental rate growth," Fitch Ratings Ltd analysts Lim Su Aik and Vanessa Chan said in a report on Monday. "The biggest risk to Wanda's ratings is a sharp and sustained property market correction, which will result in tighter liquidity due to working capital outflows."

celia@chinadailyhk.com

(HK Edition 12/24/2014 page8)