Hong Kong's Swire scraps $2.7 billion property IPO

HONG KONG Thu May 6, 2010 7:51am EDT

Clouds gather over Hong Kong on September 14, 2009. REUTERS/Bobby Yip

Clouds gather over Hong Kong on September 14, 2009.

Credit: Reuters/Bobby Yip

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HONG KONG (Reuters) - The property unit of conglomerate Swire Pacific (0019.HK) has pulled plans to raise up to $2.7 billion through a Hong Kong initial public offering because of deteriorating market conditions, the parent company said on Thursday.

Swire Properties, deep into its spin-off process, is one of several deals in the last few days to be yanked or downsized, as local stock and bond markets suffer from a combination of Chinese government tightening measures to fears of further financial troubles in Greece and the rest of Europe.

"The company is naturally disappointed at this outcome but feels that it would be wrong to proceed with the proposed spin-off given the recent sharp deterioration in market sentiment," Swire Pacific Chairman Christopher Pratt said in a statement.

Swire Pacific's shares were suspended Thursday prior to the announcement and are expected to resume trading Friday morning. The stock was down 2.82 percent before the suspension.

"The market, globally, has been pretty volatile lately due to negative news, such as Greece's debt problems," said Adrian Ngan, an analyst at CCB International. "I'm not too surprised that Swire is holding off plans right now, especially since its size is quite huge and the pricing is relatively high."

India's Essar Steel ESRG.UL, which had been looking to issue a roughly $500 million U.S. dollar bond, put that deal on hold on Thursday, a week after its sister company Essar Energy cut the price of its London IPO.

China's New Century Shipbuilding withdrew its Singapore IPO on Wednesday.

In addition to malaise spreading across stock and bond markets, the property sector itself is under major pressure, particularly in Greater China.

Property shares have dominated short-selling activity which has picked up to one-year highs.

Hong Kong stocks have dropped nearly 10 percent since mid-April, hit by government measures to curb property prices and measures to absorb excess market liquidity, including a rise in bank reserve requirements unveiled over the weekend.

Swire Pacific, the property unit's parent, is a conglomerate with businesses in aviation, property, shipping and offshore services industries. Swire Pacific also owns Cathay Pacific Airways (0293.HK), Hong Kong's dominant airline and Asia's No.5 by market value.

Swire Pacific shares were suspended on Thursday afternoon. The stock fell 2.8 percent to end the morning session at HK$81.05 before trading was halted. The company did not respond to calls seeking comment.

Goldman Sachs (GS.N), HSBC Holdings (0005.HK)(HSBA.L) and Morgan Stanley (MS.N) were underwriting the Swire Properties deal. The banks declined to comment as well.

PROPERTY BUBBLE FEARS

The authorities in China and Hong Kong have been concerned with fast-rising property prices fuelling worries of asset bubbles forming. Over the past few months, the Hong Kong government has repeatedly expressed concerns with rising property prices.

Some of its moves over the past few months include raising taxes on luxury apartments, increasing land supply and targeting irregular sales practices by developers.

Since the launch of the Swire Properties roadshow on April 26, shares of Singapore developer CapitaLand (CATL.SI) have dropped 15.9 percent, while the Hang Seng Properties Index is down 8.3 percent. Swire Pacific's shares dropped 15 percent.

Shares of Chinese developer Evergrande (3333.HK) fell 10 percent on Thursday

"The Swire Properties IPO is quite expensive. At 20-21 times PE (price to earnings), it is not surprising if they decide to pull out," said Andrew To, sales director, Tai Fook Securities Co Ltd.

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Comments (1)
Ngan wrote:
Personal opinion – Instead of trying to do the biggest IPO in a bad market, Swire should consider acquiring its long time partner, China Motor Bus (26), from the Ngan family. Many of Swire’s property developments in the past decade has been with CMB anyway, and with CMB trading at less than its cash value, it will essentially be getting a few pieces of land for development “for free”. It can then gradually inject its valuable properties into CMB when the timing is right.

May 06, 2010 10:15pm EDT  --  Report as abuse
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