Swire Properties Shelves $2.7 Billion Hong Kong IPO

Swire Pacific logo at Two Pacific Place
The Swire Pacific Ltd. logo is displayed outside Two Pacific Place in Hong Kong, in August. Photographer: Daniel J. Groshong/Bloomberg

Swire Properties Ltd., landlord to Time Warner Inc. in Hong Kong, shelved its plan to raise as much as HK$20.8 billion ($2.7 billion) in an initial public offering as a widening government-debt crisis battered the IPO market.

China Tian Yuan Mining Ltd., a Chinese privately owned iron ore producer, also decided to delay its Hong Kong initial share sale today after the Dow Jones Industrial Average had its biggest intraday point loss ever in U.S. trading.

The decision was made after considering “the deterioration in market conditions,” Swire Properties’ parent Swire Pacific Ltd. said in a statement to the Hong Kong stock exchange yesterday. Shares of Swire Pacific rose today when trading resumed, ending an eight-day losing streak as investors assess the losses to be overdone, analyst Kenny Tang said.

“More value will be reflected,” Tang, a Hong Kong-based analyst at Redford Assets Management Ltd., said in a phone interview. If the IPO went ahead, “Swire Pacific would just be a holding company which usually trades at a discount,” he said.

The stock rose 5.1 percent, the most since July 20, to close at HK$85.20 when trading ended today.

Concerns that Greece’s bailout may have to be extended to other indebted nations sent the MSCI World Index of equities to its biggest four-day decline since March 2009. Billionaire Ron Burkle’s Americold Realty Trust canceled this year’s largest U.S. IPO yesterday, while Smile Brands Group Inc. also pulled its initial sale.

Real-Estate Developers

The Dow fell almost 1,000 points, a 9.2 percent plunge that was its biggest intraday percentage loss since 1987 and largest point drop ever, before paring declines.

Tian Yuan, the biggest privately owned iron ore producer in the northern province of Hebei, will delay an IPO to raise as much as HK$3.54 billion, said two people with knowledge of the decision.

Swire Properties, the biggest commercial landlord in eastern Hong Kong island, pulled the sale three days after it published the prospectus, as the Hang Seng Property Index declined for the fourth straight week.

“The company is naturally disappointed at this outcome but feels that it would be wrong to proceed with the proposed spinoff,” Swire Pacific Chairman Christopher Pratt said in the statement. “Consideration was given to amending the terms of the global offering, but it was felt that this would undervalue the world class assets of Swire Properties.”

Ratings Outlook

Government measures to increase supply and clamp down on marketing tactics of residential real estate developers also hurt demand for Swire Properties, Credit Suisse Group AG analyst Cusson Leung said before the announcement.

Asian stocks dropped for a fifth day today in a sell-off that’s erased this year’s gains in the MSCI Asia Pacific Index on concern Europe’s debt crisis and China’s property curbs will slow the global economic recovery. The Hang Seng Index slid 1.1 percent.

The suspension of the IPO has “no immediate impact” on Swire Pacific’s A3 issuer and senior unsecured debt ratings, Moody’s Investors Service said in a statement today. “The outlook on all ratings is stable,” it said.

“A strategic pull-off under current market conditions is a wise thing to do,” Hong Kong-based Danny Yan, a portfolio manager at Taifook Asset Management Ltd., which oversees $400 million, said. “Not only are the shares’ valuations a bit stretched, property prices are also under pressure.”


Swire Properties shelved its IPO a day after London-based Prudential Plc delayed its $21 billion rights offering. U.K. regulators are looking at whether Prudential, which is buying New York-based American International Group Inc.’s main Asian unit, will have sufficient capital as a combined company.

The postponement of the sale may mark a “sharp cool-off” in the broader IPO market, Taifook’s Yan said before the announcement. “Prudential is doing the same thing. The global market is short of money.”

Swire Properties planned to sell 910 million new shares, equivalent to a 13.79 percent stake, between HK$20.75 and HK$22.90 apiece, according to the company’s prospectus.

The price range valued Swire Properties at 31.4 times to 34.6 times this year’s earnings estimated by the banks arranging the sale, two people with knowledge of the plan said last month.

Rental Income

Hongkong Land Holdings Inc., one of the biggest office landlords in the city’s financial hub, trades at 15.61 times this year’s earnings per share in Singapore, while Hong Kong-listed Wharf (Holdings) Ltd. is valued at 16.22 times, according to Bloomberg data.

Rental income from Hong Kong offices and shops accounted for 84 percent of Swire Properties’ total revenue of HK$8.19 billion in 2009, according to Bloomberg’s calculations of information in its prospectus.

“The problem is the whole market’s valuation is down, all the developers have dropped” even though Swire Properties derives most of its income from offices and shops, Credit Suisse’s Leung said.

Created as a trading company in London in 1816, Swire Pacific owns 42 percent of Cathay Pacific Airways Ltd., Hong Kong’s biggest carrier, and also bottles Coca-Cola in China and supplies offshore oil rigs.

Goldman Sachs Group Inc., HSBC Holdings Plc and Morgan Stanley were arranging the IPO.

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