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Dalian Wanda may take property arm off HK bourse, prefers Shanghai

SHANGHAI/HONG KONG (Reuters) - Chinese billionaire Wang Jianlin’s Dalian Wanda Group is looking to take its real estate arm off the Hong Kong bourse just 15 months after its debut, unhappy with its share performance and preferring to place its bets on an upcoming Shanghai listing.

A sign of Dalian Wanda Group in China glows during an event announcing strategic partnership between Wanda Group and FIFA in Beijing, China March 21, 2016. REUTERS/Damir Sagolj

Mainland-listed firms typically command higher valuations than those in Hong Kong, helped by large pools of retail investors. An index tracking dual-listed companies .HSCAHPI, shows mainland listings trade at an average 34 percent premium to the same company listed in Hong Kong.

Dalian Wanda Commercial Properties Co Ltd 3699.HK, China's largest business property developer, said its parent firm was in the early stages of considering a general offer that could result in it being taken private.

The offer would be no less than HK$48 per share, the company said in a statement, a level in line with its pricing for its IPO, in which it raised about $4 billion.

Its shares surged 18 percent on Thursday to HK$45.95, giving the company a market value of $26.8 billion, although they remain down 41 percent from an all-time high marked last June.

Wanda Commercial did not state a reason for the potential privatization, but a source with knowledge of the matter said the group felt that the Hong Kong shares were undervalued, which could hurt the pricing for its planned listing on the mainland.

The source, who was not authorized to speak on the matter, declined to be identified. Officials at Wanda Commercial declined to comment.

The move would, in many ways, make sense for Wang.

On one hand, Wanda trades at a 56 percent discount to its net asset value, according to Citigroup. Credit Suisse also estimates the fair value of the company at HK$60.00 per share.

By contrast, Wanda Cinema Line 002739.SZ, Wang's other listed business which trades in Shenzhen, has quadrupled in value since its January 2015 debut.

“They can buy cheap in Hong Kong and sell much more expensive in China,” said Raymond Cheng, Hong Kong-based property analyst with CIMB, adding that the firm’s price to earnings ratio could potentially more than double on the mainland.

Wanda Commercial said in November it was seeking to raise about 12 billion yuan ($1.9 billion) in a Shanghai offering.

TOUGH SELL?

CIMB’s Cheng said, however, that investors would likely push back against the current offer or hold out for a higher price, and Wanda could face obstacles in achieving the mainland listing.

“It is always subject to uncertainty when you plan to list in China because (IPO) policies can change,” he said, adding it was an unusual move to give up the Hong Kong berth and that most companies would prefer to maintain dual listings.

Investors in the company include China Life Insurance Co Ltd 601628.SS, Och-Ziff Capital Management Group OZM.N, and Kuwait Investment Authority, according to Thomson Reuters data.

Although property prices in top-tier cities are robust, Chinese developers are facing tough times, hurt by sinking prices in smaller cities, which are home to the majority of the country’s urban population.

Wanda Commercial, which expects a decline of nearly 40 percent in sales this year, said last week that it would scale back investment and construction in small cities due to oversupply.

Weakness in China’s property and related sectors, which account for an estimated 20 percent of gross domestic product, has been a big drag on Chinese growth, which hit a 25-year low in 2015 and is set to slow again this year.

Reporting by Adam Jourdan and Samuel Shen in Shanghai, Denny Thomas and Clare Jim in Hong Kong; Additional reporting by Shanghai newsroom; Editing by Edwina Gibbs

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