London apartments fund starts IPO pre-marketing

By Daisy Ku

LONDON (Reuters) - London Residential Opportunities (LRO) has started pre-marketing its 50 million pound listing during the usually quiet summer period as it believes now is the right time to invest in London apartments.

The initial public offering (IPO), which is expected in early September, would be the first mainboard flotation on the London Stock Exchange (LSE.L) this year.

"What we want to combine is sufficient confidence in the future for people to invest, without leaving it too long before the property opportunities disappear," said Chief Executive Officer Paul Pedley (RDW.L).

Issuers would generally avoid launching a deal in the summer due to the difficulties in meeting potential investors during the holiday season.

After the two week pre-marketing period with Matrix Corporate Capital, which arranged the listing, the team will start bookbuilding in mid-August, when many European fund managers are still on holiday.

The deal also comes as peers NewRiver and Landbank dropped their bigger IPO plans.

In the last UK property downturn in the 1990s, it took until 1998 before house prices in London returned to their 1989 levels, but Pedley, with 30 years of experience in the business, said things would be different this time.

"What happened in the early 1990s and took several years, is actually happening extremely quickly this time, probably over a period of 12 to 18 months," he added. "Some time around now is the ideal time to begin the process."

As the credit crisis removed housebuilders' ability to refinance balance sheets and residential property buyers' access to mortgages, London flats have fallen about 20 percent from their peak, according to the Nationwide House Price Index.

The housing market has shown signs of improvement lately.

The Nationwide report for May showed prices rising for three out of the last four months, by a total of 3 percent since February after 16 months of falls.

Mortgage approvals also increased, reaching 43,000 in May, up from their trough of 28,000 in November, but still less than half their long-term average and only one third of their 2007 peak, according to the Bank of England.

The company is looking to buy flats from smaller developers.

While big housebuilders such as Taylor Wimpey (TW.L) and Barratt Developments (BDEV.L) successfully tapped shareholders for equity, smaller firms have yet to repair their balance sheets.

"The big boys will always be far more aggressive in cutting prices ... The pressure will stay on the smaller developers, because they haven't got the financial muscles; they can't take the pain," said Pedley.