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65% of the funds raised by the IPO of Evergrande Property in Hong Kong will be used for mergers and acquisitions.
Author: Sun Mengfan
On November 22, Evergrande Property announced the IPO price of HK $ 8.5-9.75 per share. The IPO date is from November 23 to November 26. It is expected to be listed on the Hong Kong Stock Exchange on December 2, under share code 06666.
The basic issuance scale of the IPO is reported to be approximately 1.62 billion shares. The Hong Kong public offering and international placement accounted for 10% and 90% of the issuance scale, respectively. In addition to the basic issue, there is a standard 15% overallotment right. Based on this calculation, Evergrande’s listing is expected to rise from HK $ 13.783 million to HK $ 15.81 billion.
Prior to the official listing, 23 fundamental investors have confirmed their participation in this offering in advance. Calculated at the end of the price range, fundamental investors will subscribe approximately 790 million shares in total, equivalent to 48.7% of the total issue.
From the disclosure of the prospectus in late September to the approval of the audience, Evergrande Real Estate has been moving the rate of listing extremely fast. Behind the “lightning” meeting is Evergrande Group’s eager desire to reduce debt. The data shows that, at the end of 2019, the group’s debt-to-asset ratio, net debt ratio, and cash-to-debt coverage ratio, excluding advance accounts, were 85.3%, 199 , 3% and 51.7%, respectively.
“Under the three red lines, regardless of whether the company’s property management sector has matured, some companies are eager to promote the spin-off and listing of property management companies. Supplementing capital through equity financing will improve significantly the level of corporate leverage, especially the ratio between assets and liabilities AND the net debt ratio “. CITIC valuesAppearance thinks.
In addition to helping the group reduce its debt, Evergrande Property also expressed strong expansion ambitions. According to the data, as of June 30, 2020, Evergrande’s property layout covers more than 280 cities in China, with 1,354 contracted and serviced projects, a contracted management area of 513 million square meters and 254 million meters. squares of area under management.
In 2017, 2018, 2019 and as of June 30, 2020, Evergrande’s real estate revenue was 4,399 million yuan, 5,903 million yuan, 7,332 million yuan, and 4,563 million yuan, respectively, and net profit was 106 million yuan and 239 million yuan, respectively. , 930 million yuan and 1.147 million yuan, the compound annual growth rate of net profit in the past three years is 195.5%.
Evergrande Properties’ gross profit margin has increased in the last three years. In 2017, 2018, 2019 and the six months ended June 30, 2019 and 2020, Evergrande Properties’ gross profit margin was 9.8%, 12.2%, and 23.9, respectively. %, 23.0% and 38.1%.
The increase in gross profit margin is primarily due to the increase in the proportion of projects with relatively high property management fees, and Evergrande Property has increased its efforts to collect parking space property management fees as of 2019. At the same time, the overall profit margin has been improved by reducing labor costs year over year, simplifying the decision-making process, and using technology empowerment methods to control projects.
At the same time, Evergrande’s real estate community’s share of value-added service revenue increased from 5.7% in 2017 to 11.1% in the first half of 2020. The first half of this year’s revenue is close to last year, with a gross profit of 65%.
Starting in 2019, Evergrande Property began to pay attention to external expansion and M&A markets. In June this year, the investment development team was formally established. From June to September, the mergers and acquisitions of 5 independent regional third-party-owned companies were completed. The total area under management is approximately 7.72 million square meters.
“As a subsidiary of Evergrande Group, Evergrande Real Estate operates independently. In the past, it was more focused on managing existing projects.” Hu Liang, CEO of Evergrande Real Estate, said that after the company goes public, it will increase third-party outreach efforts and raise funds. Approximately 65% of the funds will be used for mergers and acquisitions.
Hu Liang also said that the real estate company controls the private domain traffic of tens of millions or more of owners, which is a very valuable resource at this stage. Through operations with few assets, it is possible to achieve the improvement of the value-added services of real estate companies and a situation of mutual benefit so that the owners have a more convenient life.
How to do this resource? Hu Liang explained that Evergrande Real Estate has conducted business discussions and cooperation with many Internet companies and strategic investors in various aspects, and strives to open the chain of private domain traffic from the Internet to the last mile of the community, including home improvement and rental and sale of homes. , Education and training, community media, new community retail services and other value-added services.
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