Companies

Swire to raise funds for debt repayment

By Frederik Balfour (China Daily)
Updated: 2010-05-04 09:33

HONG KONG - Swire Properties Ltd, landlord to Time Warner Inc and Societe Generale in Hong Kong, is seeking to raise as much as HK$20.8 billion ($2.7 billion) in what would be the city's largest initial public offering (IPO) since 2007.

Swire Properties aims to sell 910 million new shares, equivalent to a 13.79 percent stake, at between HK$20.75 and HK$22.90 each, Martin Cubbon, executive director of parent Swire Pacific Ltd, said in London during a video conference with reporters on Monday. The stock is to be priced on Friday and start trading May 14, he said.

Swire Properties, the biggest commercial landlord in eastern Hong Kong Island, is raising money as office rents in the city may increase this year as companies start to rehire amid a more optimistic economic outlook.

Prime office rents on Hong Kong Island, which fell 19.6 percent last year, may rise 4 percent in 2010, according to real estate broker CB Richard Ellis Group Inc.

"Swire properties is capital constrained," said Cubbon, who is also Swire Properties chief executive officer. "We have relatively modest gearing and absolute borrowings but we are constrained by our interest coverage ratios, which the rating agencies look at."

Swire Pacific will have a controlling stake of 86.21 percent after the IPO, according to the company prospectus.

Repay debt

Of the HK$19.3 billion the company would raise assuming a mid-point price of HK$21.83, approximately 70 percent will be used to repay debt and 11 percent to fund ongoing projects in Hong Kong and China. The remaining 19 percent would be kept for future property developments, according to the company prospectus.

"We will seek to minimize the cost of having a lot of cash up front without being able to deploy all that cash immediately," said Cubbon.

Charles Bremridge, finance director of Swire Properties, said that after the IPO the company's debt-to-equity ratio would be reduced from 30 percent to 13 percent.

Swire Properties owns the Pacific Place shopping and office complex in Admiralty, where Deloitte & Touche LLP and Societe Generale are tenants. In eastern Hong Kong Island, Swire's buildings include the 5.99 million square foot TaiKoo Place and houses companies such as Time Warner and JPMorgan Chase & Co.

The company enjoyed average retail occupancy rates of 98 percent and residential occupancy rates of 92 percent in the past three years. The total valuation of properties was HK$183.8 million on March 31, Cubbon said.

At the top end of the range, Swire Properties' IPO would be the largest in Hong Kong since the November 2007 share sale of China Railway Group Ltd's HK$22.1 billion Hong Kong first-time share sale, according to data compiled by Bloomberg.

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