MayBank estimates Hopewell's property business to raise $4B from IPO

That's against market rumors of $4-6B.

HH announced last Friday after market closed that it will spin-off its HK Property businesses, Hopewell HK Properties (HP) for separate listing on the HKEx.

The proceeds from the offer from IPO subscription will be used for capex of HK projects under development (mainly Hopewell Centre II to be completed in 2018) and other future opportunities in HK. No further detail on size of fund-raising, free-float and market cap of HP upon listing.

Seven and three completed and under development projects will be included in HP, respectively, of which 840,000-sq ft Hopewell Centre and 50%-owned 817,000 sq ft Lee Tung Street development are of more significance. BOCI and Credit Suisse handle the deal.

Here's how MayBank sees the IPO to impact on HH:

The spin-off is inline with our expectations since we initiated our coverage on HH in mid-July, as well as our latest update note on the company dated January 8th. We have an estimated Gross Property Assets of HKD22,147m of the said 10 projects, or HKD25.4 per share of HH. We estimated that HH will have net cash of HKD1.2b by end-June 2013. We assume zero debt, 28% target discount of HP upon listing and 25% free float, with proceeds of approx. HKD4b will be raised from the IPO, versus market rumour of HKD4-6b to be offered by new share issuance.

We currently have a HOLD rating on HH with TP of HKD33.38 (28% discount to our latest RNAV of HKD46.36 per share), 0.7% higher than current market price of HKD33.15. We believe that the news of HK property spin-off will help in boosting share price in short-run, yet valuation seems rich to us. We suggest investors to take profit upon any share price strength.