China Property Downturn Overshadows Onewo IPO

Onewo hopes to raise up to $783.5 million with its IPO, but the overall state of China’s real estate market could undermine investor appetite.

Real estate developer China Vanke’s property services unit, Onewo, is looking to go public in what will be Hong Kong’s largest IPO this year.  Onewo hopes to raise up to $783.5 million by selling a 10% stake, but China’s real estate market could undermine investor appetite.

Many of China’s biggest property developers struggle to service debts following a government crackdown on the sector’s leverage. In August, China’s largest real estate developer by sales, Hong Kong–listed Country Garden, reported a record 96% drop in profits for the first half. The group described a “severe depression” in China’s real estate market, citing “myriad challenges, including the market’s weakening expectations, sluggish demand and a fall in property prices.”

Vanke, which is the second biggest property developer by sales, has done marginally better than its peers. Its net profit in the year’s first half was up 11%, according to the company, which is partly insulated by state backing and holds less debt than some developers. Even so, its shares are down nearly 15%, reflecting the broader market malaise.The Hang Seng property services and management index, which reflects the performance of Hong Kong–listed companies in real estate services, is already down by nearly 44% this year.

Onewo, in which Vanke holds a 62.9% stake, manages around 785 million square meters (about 8.4 billion square feet) of property via its cloud platform, Zhuzher. Singapore’s Temasek and hedge funds managed by Swiss bank UBS are among its cornerstone IPO investors. Vanke will use the capital to grow, upgrade Onewo’s software and invest in other service providers.

While this might not be the best market to list in, Vanke’s better-than-expected interim results may provide the best window of opportunity for an offering. Either way, its performance will likely help other Chinese property firms decide if they want to go public.