HONG KONG: Both the stock market and the finance community were positive about Swire Pacific's possible spin-off of its property arm.

As Swire Pacific received approvals from analysts and upgrades from investment banks, its shares rose HK1.05 to close at HK$96.05 against a falling overall market.

Swire Properties accounted for 32 percent of the blue chip company's revenue in the first-half.

Swire Pacific, with businesses ranging from soft drinks to airlines, may raise at least HK$30 billion ($3.9 billion) by listing its property unit, CLSA Asia-Pacific Markets estimated.

The Swire Pacific Ltd logo adorns Two Pacific Place. Bloomberg News

Maisie Shun Wah, a spokeswoman at Swire, declined to comment on whether the plan would include a share sale.

A separate listing may enable Swire to command a higher valuation for its property assets and raise money more cheaply as Hong Kong office rents and home prices rebound. The plan may signal a "more aggressive" stance toward acquisitions, particularly in the mainland, Danie Schutte, an analyst at CLSA, said yesterday.

"With the big jump in property prices, you're not getting in at the bottom if you make acquisitions now," Schutte said.

Schutte estimates that Swire Properties, which accounts for 78 percent of the parent's net asset value, could raise HK$30 billion to HK$40 billion by selling a 25 percent stake.

Even at HK$30 billion, it would be the biggest IPO by a Hong Kong-based real estate company, according to Bloomberg data.

This year, Swire Pacific has advanced 80 percent in Hong Kong trading compared with a 48 percent gain in the benchmark Hang Seng Index. The Hang Seng Property Index, which includes six developers in Hong Kong, has climbed 61 percent.

Swire Properties, the biggest commercial landlord in eastern Hong Kong Island, may draw investors because of its focus on office and retail properties as the government tries to cool the housing market, said Kenny Tang, a Redford Securities analyst.

"Their offices and malls are all in prime areas, plus office rents are starting to recover," making Swire Properties more appealing than homebuilders, Tang said.

Bank of America Corp's Merrill Lynch unit upgraded its rating on Swire to "buy" from "underperform" because of "a

possible unlocking of value" from the spinoff, Hong Kong-based analysts Karl Choi and Christie Ju wrote in a report yesterday.

Any listing would be by way of a spinoff, Swire Pacific said in a Hong Kong stock exchange filing on Monday. Swire owned 14.5 million square feet (1.35 million square meters) of properties in Hong Kong as of June 30 and has another 1 million square feet pending development, it said in August.

Swire had real-estate revenue of HK$3.82 billion in the first half, 32 percent of total sales, according to a company filing. That made the property unit, formed in 1972, the second-largest contributor after beverage bottling.

Created as a trading company in Liverpool in 1816, Swire began operating in Hong Kong in 1870, making it one of the city's oldest companies. Swire also bottles Coca-Cola in Hong Kong and the mainland and supplies offshore oil rigs. It's the biggest shareholder in Cathay Pacific Airways Ltd.

"It's reasonable for the conglomerate to separate its property unit as it grows to a certain size, so we will have a more reasonable valuation on the business," said Marco Mak, head of research at Tai Fook Securities.

"Making the unit separate for listing can help to expand the business," said Mak, who has a "buy" rating on Swire.

China Daily/ Bloomberg News

(HK Edition 11/04/2009 page4)