Uncertainty remains over Dalian Wanda's IPO price

Despite opportune timing, China's diversified conglomerate Dalian Wanda Group is facing difficulties in securing a high valuation from institutional investors for the shares it is planning to offer for sale in Hong Kong.

To be sure, the latest interest rate cut, the first in two years, has pumped new life into the mainland property market. But analysts doubt if the magic of the relaxed monetary policy would rub off on Dalian Wanda's Hong Kong IPO.

"Investment sentiment has been largely revived by the central bank's rate cut, but institutional investors have remained cautious about the financial problems faced by many mainland property developers," said Kenny Tang Sing Hing, general manager of the securities and asset management business of AMTD Financial Planning, a subsidiary of Hong Kong-based Cheung Kong Group.

For that reason, Dalian Wanda will have to set the offer price of its shares at below market average to entice investors, Tang and others said.

Tang estimated that an offer price at anything above 7 times earnings will not do. The stock market average multiple is about 15 times.

"You've got a bunch of choices of cheap mainland-based property developers on the Hong Kong market right now. Shares of many smaller players in this sector were trading at around 5 to 6 times earnings earlier this year," he said.

Media reports on Tuesday suggested that Dalian Wanda, controlled by Chinese billionaire Wang Jianlin, has won approval from the China Securities Regulatory Commission for its Hong Kong IPO. The listing is expected to raise more than $6 billion.

Some suggested the Hong Kong Stock Exchange would hear Dalian Wanda's IPO application later this week, and the company is slated for a listing on the Hong Kong Stock Exchange on December 19.

Timing is important for the IPO, stock analysts said.

"Bullish sentiment has largely revived in both the Chinese mainland and Hong Kong after the central bank cut both lending and deposit rates. It is very good timing," said Francis Kwok, marketing director of Bright Smart Securities based in Hong Kong.

But if the price is set too high, many investors, especially individual investors, will be discouraged from subscribing, he said.

Analysts said the property sector is one of the biggest beneficiaries of the central bank's rate cut announced last Friday as it will not only boost sales but also reduce the cost of borrowings for the many highly geared developers.

Given the large inventories carried by many developers, however, many analysts and investors remained skeptical about the sustainability of the property market's revival.

Dalian Wanda posted a profit of 24.9 billion yuan ($4 billion) on revenue of 86.8 billion in 2013. It said it earned 4.9 billion yuan on revenue of 23.2 billion yuan in the first half of 2014.

The company was also reportedly bidding for the Swiss sports marketing group Infront, valued at about 900 million euro ($1.12 billion). Infront is run by Philippe Blatter, nephew of Sepp Blatter, head of soccer's global governing body FIFA. US private equity group Providence and another Chinese company are also in the competition.