Powerlong Posts Modest IPO Debut

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AMY OR Chinese property developer Powerlong Real Estate Holdings Ltd., which had cut its initial public offering price by 44%, rallied at the start of its trading debut Wednesday before giving up most of those gains by the close. Smaller rival, Yuzhou Properties Co., set a conservative price range Wednesday to raise up to US$285 million in its IPO. Chinese property companies seeking to list in Hong Kong have begun cutting their offer prices or pricing at the low end of expectations. This follows Glorious Property Holdings Ltd.'s 15% drop on its first day of trade earlier this month after it raised US$1.27 billion from its IPO. Powerlong, rose as much as 15% Wednesday before closing at 2.80 Hong Kong dollars (36 U.S. cents), 2% higher than its HK$2.75 IPO price, and in line with the benchmark Hang Seng Index, which closed up 2% at 21,886. The Fujian-based company had sought to raise US$628 million by selling one billion shares in a range of HK$3.30 to HK$4.90, but ended up raising US$353 million after lowering the price due to the poor response from investors for a series of new listings in recent weeks. Analysts attributed Powerlong's trading premium to the price reduction. "Powerlong rose on its debut only because it cut its offer price," said Peter Lai, a director at DBS Vickers. "Going forward, developers considering [IPOs] need to take the hint from Powerlong, and price their share sale sensibly." SinoPac Securities said Powerlong's business model was also attractive, as its operations are in fast-growing Chinese cities where land costs less and it also holds on to its quality properties for the long-term. Powerlong sells residential properties and leases commercial properties for long-term investment in second- or third-tier cities in Fujian, Jiangsu, Shandong, Henan and Anhui provinces. Meanwhile, developer Yuzhou Properties, which started its bookbuild Wednesday, set a price range of HK$2.70 to HK$3.70 for its sale of 600 million shares. That price range translates to 5.2 to 7.2 times its forecast 2010 earnings, comparable with Powerlong's current price/earnings valuation of 6.4 times. Chinese developers already listed in Hong Kong trade at an average P/E of 11.6 times, analysts said. Yuzhou secured two cornerstone investors in its IPO, although their subscriptions are relatively low. Hui Wing Mau, chairman of Hong Kong-listed Shimao Property Holdings Ltd., has pledged to buy US$10 million worth of shares in the developer, and Xiamen C&D Real Estate Co. will buy US$20 million worth of shares, a person familiar with the deal said. Morgan Stanley is the bookrunner for Yuzhou's IPO, and Goldman Sachs Group Inc., ICBC International Securities Ltd. and Macquarie Capital Securities Ltd. handled Powerlong's share sale. Write to Amy Or at amy.or@dowjones.com This e-mail address is being protected from spambots. You need JavaScript enabled to view it Printed in The Wall Street Journal, page M11