China: Real estate giant Vanke China wants to list its subsidiary Onewo on the stock market despite all the turbulence

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The real estate group China Vanke wants to list its service subsidiary Onewo at the end of September

Photo: Tomohiro Ohsumi/Bloomberg via Getty Images

For a long time, China's population was convinced that real estate is a good investment and the best provision for old age: private households have invested around 70 percent of their assets directly or indirectly in real estate, nine out of ten households own a property.

For years, the real estate industry represented up to 30 percent of the country's economic output.

But the former engine of growth is now proving to be a dangerous block on the leg, despite billions in government aid for the Chinese economy.

Experts expect China's economy to grow just a little more than 3 percent this year, Beijing had set a target of 5.5 percent.

Again and again new lockdowns in the course of the zero-Covid-regime put the growth target in the far distance.

Factories are producing less, people are keeping their money together: while the rest of the world is groaning under high inflation, in August it only rose by 2.5 percent in China and even fell compared to the previous month.

Property sales and prices in China continue to fall

At the same time, the housing market is bottoming out: August home sales fell for the 14th straight month.

Sales by the country's top 100 developers slipped by almost a third year-on-year to about $75 billion (519 billion yuan).

Official data last Friday also showed new home prices fell further in August, by as much as 4 percent in smaller cities.

One more reason for potential buyers to bet on further falling prices, especially since at least two million properties that have already been sold by property developers in need are still awaiting completion.

According to the Wall Street Journal, S&P estimates that about $114 billion (800 billion yuan) is missing.

Beijing recently issued guarantees for bonds from few property developers, which supported their bonds and share prices.

However, observers see this as a rearguard action at best, which cannot restore confidence in the industry.

Vanke China had to massively lower IPO targets

In the midst of this decline, listed real estate developer China Vanke is surprising by announcing that it will list its real estate services company Onewo on September 29 in Hong Kong.

The IPO of the Shenzhen-based subsidiary is expected to bring in around $790 million, making it the largest this year in Hong Kong, according to reports from Asia Financial, Bloomberg and the Financial Times on Monday.

Vanke offers almost 117 million shares and thus around 10 percent of the paper in a range between 47.10 and 52.79 Hong Kong dollars.

The offer values ​​the subsidiary between $7 billion and $7.8 billion.

At $790 million, the issue volume is far from the $2 billion that Vanke originally aimed for, but had to drastically scale back his goals with the stock market turbulence, they say.

Onewo even made profits during the crisis

According to the information, Onewo acquired about 785 million square meters of residential and commercial space at the end of last year and achieved a profit of the equivalent of 243 million US dollars, up 13 percent over the previous year.

Vanke owns about 63 percent of the company and was responsible for about 16 percent of Onewo's revenue last year.

Several major investors, including Temasek Holdings, the Singapore state-owned investment company, have pledged to subscribe for shares worth the equivalent of $280 million.

Vanke itself is listed on the Hong Kong stock exchange and, according to Bloomberg, was the first Chinese real estate developer last month to report an increase in profits, defying the broader downturn.

Due to its lower level of debt, the group has so far weathered the crisis better than some of its competitors and probably also benefited from the fact that it is partly owned by the state, as "Asia Financial" reports.

Now, the real estate service market in China is closely related to the real estate industry.

That's why Onewo's IPO is considered an important indicator of how investors still classify the assets of property developers.

The prospects are anything but rosy: On Monday, the experts at UBS also lowered their forecast for China's economic growth, citing "an ongoing real estate downturn" among other reasons.

The Hang Seng real estate services index has fallen 44 percent so far this year and is showing little improvement at the moment.

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