China Construction to raise $7.3b in IPO
China State Construction Engineering Corp. plans to raise as much as 50.2 billion yuan ($7.3 billion) in the world’s biggest initial public offering since March 2008.
China’s largest housing contractor will sell as many as 12 billion shares at 3.96 yuan to 4.18 yuan each, according to a filing to the Shanghai Stock Exchange yesterday. The sale of a 40 percent stake values State Construction at as much as 125.5 billion yuan.
State Construction’s IPO is almost 28 times larger than the second-biggest sale in mainland China this year, testing a rally that’s pushed the benchmark Shanghai Composite 80 percent higher since Dec. 31. The company, led by Chairman Sun Wenjie, plans to use proceeds to expand in residential construction, as a surge in bank lending drives a pickup in the housing market.
“The market won’t have any problem holding up the State Construction sale,” Yu Yang, a Guangzhou-based strategist at Guotai Junan Securities Co., said before the filing. “There’s so much money around after the relatively loose monetary policy.”
The IPO values State Construction at as much as 51.3 times 2008 profit, the company said. Companies in the China SE Shang’s Industrial Index trade at an average 59 times earnings, according to data compiled by Bloomberg. For the Standard & Poor’s 500 Index, the ratio is 15.
State Construction’s profit fell 44 percent in 2008 to 4.92 billion yuan because of the slowing property market, rising raw material prices and higher tax payments. The company and its advisers are predicting a recovery this year, as the government’s 4 trillion yuan stimulus package begins to revive the world’s third-largest economy.
New home prices in 36 medium-sized and large Chinese cities rose 6.3 percent in June from a year earlier, the National Development and Reform Commission said today. Nationwide property sales jumped 53 percent last month from a year earlier by value, and investment in real estate development increased 9.9 percent, the statistics bureau said July 10.
“Earnings will remain strong as China’s economic growth picks up,” said Luo Guo, a Shanghai-based analyst at Orient Securities Co. “Their construction business is linked to the real estate sector, so investors are pretty positive on the fundamentals.”
For China’s securities regulator, which began approving IPOs last month after halting sales in September last year following a stock market rout, State Construction will provide a test of investors’ ability to digest new equity.
State Construction’s offering is the biggest in China since PetroChina Co. raised 66.8 billion yuan in October 2007. Worldwide, it is the largest IPO since Visa Inc. collected more than $19 billion in March last year.
Underpinning the return of IPOs in China, the Shanghai Composite closed yesterday at a 13-month high. The gauge is the world’s second-best performing benchmark this year, according to Bloomberg data. The index was little changed at 10:10 a.m.
State Construction is the fifth company to get final approval to sell shares since the IPO moratorium ended last month, following Guilin Sanjin Pharmaceutical Co., Zhejiang Wanma Cable Co., Your-Mart Co., and Sichuan Expressway Co. Sanjin, Wanma and Your-Mart surged on their debuts; Sichuan Expressway hasn’t yet begun trading.
The company owns about 34.3 million square meters of land reserves and plans to use them to expand in real estate development, according to its prospectus. State Construction plans to use as much as 8 billion yuan of the IPO proceeds for 24 commercial housing projects requiring a total investment of 15.8 billion yuan.
State Construction is building the headquarters for state- run China Central Television in Beijing. It expects to complete the project in December, according to the share sale document.