Li Wa, chairman of the board of Excellence Real Estate Group Ltd (left), and Li Xiaoping, vice chairman of the board and president, wave during a media event in Hong Kong Friday. Excellence Real Estate Group, a Shenzhen-based developer, may raise as much as HK$7.8 billion ($1 billion) in a Hong Kong IPO, said a sale document. Bloomberg News

HONG KONG: Mainland developer Excellence Real Estate Group plans to raise up to HK$7.8 billion from a Hong Kong initial public offering (IPO), as the real estate conglomerate seeks to cash in on the recent property boom in the country.

Excellence, which focuses on commercial properties and mid- to high-end residential projects on the mainland, is selling 3 billion new shares, or around a 25 percent stake, at HK$2.10 to HK$2.60, according to an e-mailed document sent to fund managers on Friday.

The offer price of Excellence will be around 35 to 45.3 times the company's forecasted earnings in 2009. However, as market expects the company to make 2.7 billion to 2.8 billion yuan earnings in 2010, that estimate will mark down the offer price to 9 to 11 times its forecasted earnings in 2010.

The Shenzhen-based Excellence and the Guangzhou-based Evergrande Real Estate Group are the two larger mainland property developers that are marketing Hong Kong IPOs this year.

Castor Pang, research director at CINDA International Holdings, said the recent volatile IPO market may take a toll on the retail subscription of Excellence.

"Mainland property stocks are performing quite badly these days, the market may not have too much interest in subscribing the new shares," Pang said, adding that Excellence may set its offer price at the lower end, because of the feeble market response.

Taking advantage of the surge in share prices this year, mainland property developers are queuing for public offerings in Hong Kong, to raise capital for new projects and debt repayment.

New listings, however, have brought disappointment to the real estate developers, because of their aggressive pricing of new issues.

Shares in Glorious Property Holdings and China South City Holdings have plunged more than 25 percent since their trading debuts in late September, while the latest, the Powerlong Real Estate Holdings IPO, closed 3.27 percent below its reduced offer price in its third day of trading on Friday.

China Life Insurance and Ping An Insurance Group are taking a combined HK$387.5 million of shares in Excellence, making them the cornerstone investors in the IPO, market sources said.

Excellence currently has a land bank of 11.7 million square meters of undeveloped land worth 44.6 billion yuan in seven first-tier mainland cities, including Beijing, Shenzhen, Shanghai and Guangzhou.

CINDA's Pang said Excellence has a bright business prospect in the future, since land on the mainland is not expensive.

"The mainland property industry will perform quite well this year, with an estimated 25 percent profit growth for the entire sector," he added.

Echoing Pang, credit ratings agency Moody's said the conditions of residential property market on the mainland are stabilizing and likely to remain so for the next 12 months, as a favorable macro-economic environment has improved sentiment and sales.

(HK Edition 10/17/2009 page5)