Dalian Wanda Group
The Chengguan Wanda Plaza in Lanzhou, China.
Chinese shopping mall developer Dalian Wanda Commercial
Properties makes its debut in Hong Kong on Tuesday in what will be
Asia's biggest initial public offering (IPO) this year, but market
sentiment is far from strong, according to experts.
The property arm of Chinese billionaire Wang Jianlin's Dalian Wanda Group, Wanda Commercial Properties, raised $3.7 billion last week after selling 600 million shares at $6.19 each, the higher end of its price range.
The flotation is expected to see Wang regain his title as China's richest man, a position he held in 2013 before being overtaken by Alibaba founder Jack Ma this year. Wang, who owns 98 percent of the Wanda Group, is currently ranked China's fourth-richest man, according to Forbes.
"It's not going to have a blockbuster debut. They will manage to have a flat
opening because of the size and valuation. They valued themselves at single-digit PEs [price-to-earnings ratios], cheaper than other property stocks in Hong Kong," said Jackson Wong, associate director at United Simsen Securities.
Read MoreGlobal IPO market booms 50% in 2014
The IPO values the firm at 8.6 times 2015 earnings forecasts, higher than major mainland property players China Resources Land and China Vanke, according to Reuters. The Beijing-based firm has China's largest commercial property portfolio, with 159 Wanda Plaza shopping centers and 6 Wanda City projects spread out across the country.
"Property stocks are not hot in Hong Kong right now, so I don't expect a huge opening but it will be better than what most people think. Recent IPOs have had a 10-20 percent drop from their debut price, so this could perform just ok tomorrow," Wong added.
The property arm of Chinese billionaire Wang Jianlin's Dalian Wanda Group, Wanda Commercial Properties, raised $3.7 billion last week after selling 600 million shares at $6.19 each, the higher end of its price range.
The flotation is expected to see Wang regain his title as China's richest man, a position he held in 2013 before being overtaken by Alibaba founder Jack Ma this year. Wang, who owns 98 percent of the Wanda Group, is currently ranked China's fourth-richest man, according to Forbes.
"It's not going to have a blockbuster debut. They will manage to have a flat
opening because of the size and valuation. They valued themselves at single-digit PEs [price-to-earnings ratios], cheaper than other property stocks in Hong Kong," said Jackson Wong, associate director at United Simsen Securities.
Read MoreGlobal IPO market booms 50% in 2014
The IPO values the firm at 8.6 times 2015 earnings forecasts, higher than major mainland property players China Resources Land and China Vanke, according to Reuters. The Beijing-based firm has China's largest commercial property portfolio, with 159 Wanda Plaza shopping centers and 6 Wanda City projects spread out across the country.
"Property stocks are not hot in Hong Kong right now, so I don't expect a huge opening but it will be better than what most people think. Recent IPOs have had a 10-20 percent drop from their debut price, so this could perform just ok tomorrow," Wong added.
A 'credit-positive' IPO
With China's real-estate sector currently in a slump, the
IPO could ease the company's high debt burden, a major ratings agency
said, a factor that has weighed on Dalian Wanda's corporate earnings.
Net profit in the first six months of the year slumped a 47 percent from
the year-earlier period.
Fitch Ratings believes the proceeds from the IPO will reduce Wanda's leverage from 10.8 times earnings at the end of June to just under 7 times by year-end. Net debt is expected to be trimmed to below 80 billion yuan, from 101 billion five months ago.
"We estimate that Dalian Wanda Commercial Properties' net debt/net capitalization ratio will decline to 38-42 percent at the end of 2014, from 44.5 percent at the end of June 2014," said Moody's in a recent report.
"The IPO will also reduce the company's reliance on debt funding, thereby enhancing its interest coverage," Moody's added.
Fitch Ratings believes the proceeds from the IPO will reduce Wanda's leverage from 10.8 times earnings at the end of June to just under 7 times by year-end. Net debt is expected to be trimmed to below 80 billion yuan, from 101 billion five months ago.
"We estimate that Dalian Wanda Commercial Properties' net debt/net capitalization ratio will decline to 38-42 percent at the end of 2014, from 44.5 percent at the end of June 2014," said Moody's in a recent report.
"The IPO will also reduce the company's reliance on debt funding, thereby enhancing its interest coverage," Moody's added.
What it means for Hong Kong
Wanda's listing raises a concern that has dogged Hong
Kong's IPO market this year: Valuation discounts. Wanda was initially
expected to raise $6 billion, but tepid investor interest forced the
Beijing- based firm to slash its offering.
Other Hong Kong IPOs have faced similar issues this year, with pork producer WH Group lowering its valuation to $2.3 billion in August from an earlier target of $5.3 billion. In January, Hong Kong Electric cut the size of its planned listing by more than $1 billion.
Rebecca Chan, partner and head of Hong Kong capital markets of KPMG China, told CNBC last week that she doesn't believe Hong Kong is becoming a discount IPO market, calling lower valuations more of a company-specific situation rather than a broad trend.
"I don't see that trend at this stage, it's too early to say whether companies will price at a discount or not," she said.
The Hong Kong market has raised $27.1 billion from listings this year, placing it second behind the New York Stock Exchange in terms of IPO volume.
KMPG is optimistic on the city's 2015 IPO outlook, anticipating at least $30 billion to be raised next year from 110 companies.
Other Hong Kong IPOs have faced similar issues this year, with pork producer WH Group lowering its valuation to $2.3 billion in August from an earlier target of $5.3 billion. In January, Hong Kong Electric cut the size of its planned listing by more than $1 billion.
Rebecca Chan, partner and head of Hong Kong capital markets of KPMG China, told CNBC last week that she doesn't believe Hong Kong is becoming a discount IPO market, calling lower valuations more of a company-specific situation rather than a broad trend.
"I don't see that trend at this stage, it's too early to say whether companies will price at a discount or not," she said.
The Hong Kong market has raised $27.1 billion from listings this year, placing it second behind the New York Stock Exchange in terms of IPO volume.
KMPG is optimistic on the city's 2015 IPO outlook, anticipating at least $30 billion to be raised next year from 110 companies.
Nyshka ChandranAssistant Producer, CNBC Asia-Pacific
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