China Vanke unit Onewo to raise $783 million in Hong Kong's largest IPO of 2022

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Developer China Vanke Co Ltd's property services arm has launched Hong Kong's largest initial public offering (IPO) of 2022, aiming to raise up to $783.5 million in a deal that will be a key test for investor appetite.

The subsidiary, Onewo Space-Tech Service, has set a price range of HK$47.1 to HK$52.7 a piece in the public offering of 116.74 million of its shares, which represent 10% of the company's share capital, according to a deal term sheet.

The price range values Onewo at $7 billion to $7.8 billion.

Vanke, which is China's second-largest property developer by sales and is listed both in Shenzhen and Hong Kong, owns 62.9% of Onewo and is its biggest customer, regulatory filings showed.

The deal is likely to reveal how much appetite investors have for buying into the services and management sub-sector associated with China's cash-squeezed real estate market, which has lurched from one crisis to another over the past year.

While a string of Chinese developers have defaulted on offshore debt in that time, Vanke has weathered the crisis better than its rivals, thanks in part to carrying less debt relative to its equity and having partial state ownership.

Once Onewo's shares debut on the Hong Kong stock exchange, their performance is also likely to influence the prospects of other property services companies looking to raise capital through public offerings.

The Hang Seng property services and management index is down 44.3% so far this year, reflecting ongoing weakness in the real estate sector.

Some services companies have scrambled to lend money to their parent companies or raise funds for them. Investors have viewed such moves dimly.

In August, shares in property manager Jinke Smart Services Group (9666.HK) dropped 37% in one day after it said it would lend up to $222.3 million to parent Jinke Property.

The Onewo IPO would not be directed at raising liquidity for Vanke, Yu Liang, chairman of the parent company, said on Aug. 31. The subsidiary accounted for only 1% to 2% of Vanke's assets and profits, Yu added.

SCALED BACK

Global financial market volatility led to Onewo's IPO being scaled back from an initial ambition to raise up to $2 billion, people with knowledge of the matter previously told Reuters.

Onewo said it planned to use funds from the IPO to expand its existing businesses, upgrade its software and take majority stakes in three to five "value added" service providers in its sector.

The IPO deal has participation from six cornerstone investors that have together subscribed for up to $280 million worth of the shares, the filings showed. Among those investors are China's Mixed Ownership Reform Fund, China Chengtong Investment and UBS Asset Management.

The IPO final price will be set on Sept. 22; public trading of the shares is due to begin on Sept. 29.

The deal also comes as a boost for the Hong Kong bourse.

Amid Sino-U.S. tension and a tightening regulatory environment in China, companies have raised just $2.42 billion in IPOs in Hong Kong so far in 2022, versus $23.76 billion in the same period of 2021, Refinitiv data showed.

Onewo's transaction will become Hong Kong's largest IPO of 2022, eclipsing that of Huitongda Network Co Ltd (9878.HK), which raised $297 million in February.

The two largest equity deals in Hong Kong this year - China Tourism Duty Free Corp's $2.1 billion share sale and one by Tianqi Lithium's worth $1.7 billion - were secondary listings. Both firms were already listed in mainland China.