Warburg backs $437m China IPO spin-out

The New York-based private equity giant is buying a 0.7 percent stake in a portfolio company spin-out.

New York-based private equity firm Warburg Pincus is backing its second Chinese developer IPO this year as a cornerstone investor in the potentially HK$3.39 billion (€322 million; $437 million) IPO of mainland hotel operator and developer Jinmao Investments.

According to a Hong Kong Stock Exchange filing, Warburg Pincus has agreed to buy a 0.7 percent stake in the listed trust upon its IPO, or a capital commitment of HK$77.5 million. Jinmao is looking to offer 600 million shares, with a minimum and maximum offering price of HK$5.35 and HK$5.65, expected to be completed on July 2.

Warburg’s capital for this commitment would come from the firm’s $15 billion Warburg Pincus Private Equity X raised in 2007. Jinmao is the hospitality-focused subsidiary of Franshion Properties, a developer and operator of large-scale, high-end commercial real estate projects in China. Warburg took a minority stake in Franshion through the Hong Kong stock exchange in 2010, and it is thought that the firm could recycle some of the capital of that investment into its Jinmao stake.

Other cornerstone investors in Jinmao’s IPO include two high net-worth individuals and Shanghai-listed Shanghai Construction Group, which altogether will invest approximately HK$233 million in Jinmao for a combined 2.2 percent stake. Underwriters include seven regional and international banks such as JP Morgan, Morgan Stanley and Deutsche Bank.

Once spun out from Franshion, Jinmao will have six completed hotels and three hotels under construction to its name across the country, worth approximately RMB24.3 billion (€2.9 billion; $3.9 billion). Structured as a trust company on the Hong Kong stock exchange, Jinmao’s revenue has been decreasing slightly over the past three years, but its profit almost doubled last year to more than HK$1 billion from HK$639 million in 2012.

Warburg Pincus declined to comment further than the regulatory filings.

Warburg Pincus has been particularly active with its Chinese developer investments this year. In March, the firm listed commercial and residential real estate developer Sunshine 100 Holdings and raised about HK$2 billion in the IPO. Just last month, the firm also attracted Dutch pension manager APG Asset Management as an additional investor for up to $650 million in its portfolio company e-Shang, a Shanghai-based logistics developer.