IPOs: E-House Eyes IPO For Asset Management Unit

Bottom line: An IPO plan for Jupai could raise up to $100 million and perform relatively well if it can sell itself as an asset manager well positioned to profit from China’s real estate downturn.

E-House grooms Jupai for IPO

The year’s first IPO for a Chinese company in New York could finally be in the pipeline, with word that an asset management firm controlled by real estate services firm E-House (NYSE: EJ) has made its first filing for a listing. The plan comes in a broader announcement by E-House, which has transferred its asset management business to a third company called Jupai, which in turn has submitted a draft registration to the US securities regulator in preparation for a proposed IPO.

If the plan goes forward, it could become the first listing for a Chinese company in New York this year, stealing the distinction from another IPO plan by group buying site 55Tuan. IPO watchers will know that 55Tuan filed its listing plan back in January, but missed several deadlines for unexplained reasons without formally saying it is scrapping the plan. (previous post)

By comparison, E-House has a better record for completing its IPO plans, following its successful spin-off and listing a year ago for its separate Leju (NYSE: LEJU) site. From a broader perspective, I like E-House’s evolving strategy of spinning off its various units into  separate companies, which helps differentiate its businesses and gives stock buyers more focused investment options. But frankly speaking, China’s real estate market is standing on the brink of a major correction, meaning now may not be the best time for a new company listing.

According to its newly announced plan, E-House has agreed to transfer its E-House Capital unit, which focuses on real estate asset management, to Jupai. (company announcement) In exchange, E-House will receive 33 percent of Jupai’s shares. The deal contains a few other provisions that will ultimately give E-House 37 percent of Jupai, making it the company’s largest single shareholder.

E-House said Jupai has made confidential filings to the US Securities and Exchange Commission (SEC), meaning the timing for an actual offering is still unclear and will remain subject to market conditions. But the fact that it’s taking the unusual step of disclosing the plan so early means it’s probably hoping to make the listing in the not-too-distant figure, which could be pegged to a recent rally for US-listed Chinese real estate services stocks.

Such stocks have taken a beating over the last year, with E-House and rival SouFun (NYSE: SFUN) both losing about half of their value over that period due to concerns about the real estate correction. Leju’s shares have performed a bit better since their IPO a year ago, but are still down about 20 percent from their listing price.

The timing of E-House’s announcement may be linked to the recent rally that has seen shares for all 3 companies jump 15-20 percent over the last month. I’m personally unaware of any particular reason behind the rally, though I’ve previously said that these companies are all relatively solid and should do well over the longer term, and that the sell-off in the second half of last year might be overblown.

Jupai focuses on the traditional business of asset management, which looks a bit risky now due to the property market’s uncertainty. But a well-managed company with lots of cash could certainly do well if the correction accelerates and property owners start to sell at bargain prices. We’ll have to wait and see some financials for Jupai before commenting too much more, but the offering could attract some interest if it can sell itself as a player that can profit from China’s real estate market downturn.

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