Wanda Eyes Mega-IPO In HK

Wanda files for $6 bln HK IPO

Hong Kong may be disappointed about losing the world’s biggest Internet IPO with the imminent trading debut of Alibaba in New York, but it’s getting a nice consolation prize with word of a major new listing plan by top commercial property developer Wanda Group. The Wanda reports are getting much less coverage than they might normally due to Alibaba fever, which will see the Chinese e-commerce leader raise more than $20 billion when its shares start trading on Friday in New York. But at up to $6 billion, the IPO for Dalian Wanda Commercial Properties will still qualify as one of the world’s biggest offerings for 2014.

I’m not a big fan of Chinese real estate, as the market is highly speculative and fundamentals are almost meaningless due to the market’s youth. But that said, Wanda would probably be one of my top picks if I were to invest in the sector. That’s because Wanda mostly develops commercial properties like shopping malls and office towers, unlike most Chinese real estate firms that specialize in residential development.

Such commercial properties are mostly rented out to companies and shop owners, rather than purchased outright like most residential properties. Thus Wanda’s property portfolio isn’t subject to the same level of speculation that has pushed prices of many residential properties in China well beyond the limits of reason. That speculative fever has raised home prices in cities like Beijing and Shanghai to levels that are often higher than comparable products in the west, even though the average Chinese makes far less money than his western counterpart.

Wanda’s colorful and very wealthy founder Wang Jianlin said at the beginning of this year that he wanted to make public offerings for 2 of his company’s units by year end, though he wasn’t more specific. (previous post) His remarks fueled speculation that the company’s profitable shopping mall and fast-growing movie theater units were the most likely candidates, and the new reports indicate the former of those 2 will indeed be the first to make a public offering.

According to the reports, Dalian Wanda Commercial Properties had originally hoped to make its blockbuster IPO in Shanghai, but opted for Hong Kong due to the big backlog of companies waiting to list in China due to a long IPO freeze that was only recently lifted. (English article; Chinese article) If it reaches the $6 billion fund-raising target, the IPO would be the largest in Hong Kong since insurance company AIA Group (HKEx: 1299) raised $20.5 billion through a listing there in 2010.

The reports add that Dalian Wanda, the parent of Hong Kong-listed Wanda Commercial Properties (HKEx: 169), plans to make its first filings for the new listing soon, and expects its shares to debut before the end of the year. Underwriters of the deal include leading Chinese investment bank CICC and British giant HSBC (HKEx: 5; London: HSBA). As a group, Wanda currently owns 159 shopping malls in 112 cities throughout China, and 102 hotels.

As I’ve said above, this particular IPO looks relatively attractive due to its focus on commercial real estate rather than residential. But that said, Wanda does carry one unusual political risk that could potentially cause problems in the future. That risk lies in its home city of Dalian in northeast China, which also happens to be the former base of fallen Chinese political star Bo Xilai. I won’t recount any politics here, but Wang almost certainly owes at least part of his huge success to Bo’s support. Thus with Bo now out of the picture, currently serving jail time for corruption, Wang and Wanda could potentially face future headaches as a result of their ties to this controversial political figure.

Bottom line: Wanda’s upcoming Hong Kong IPO looks like a good bet due to its focus on commercial property, but could face some risk due to ties to a now disgraced former political patron.

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