Photo/VCG

Oct. 12 (NBD) -- Two real estate firms from the Chinese mainland Thursday completed their initial public offering (IPO) in Hong Kong. 

Shares of Midea Real Estate Holding Ltd. (Midea Real Estate, 03990.HK) fell below its IPO price HK$17 (2.17 U.S. dollars) on its first day of trading, closing at HK$15.88 (2.03 U.S. dollars). DaFa Properties Group Limited's (DaFa Properties, 06111.HK) stock ended the day at its opening price of HK$4.2 (0.54 U.S. dollars).

Plus the newly listed two, four Chinese mainland real estate firms have got listed in Hong Kong so far this year. Five more including Nanjing-based Yincheng International Holding Co., Ltd. (Yincheng International) and Dexin China Holdings Company Limited (Dexin China) have submitted applications for IPO in Hong Kong. 

Behind the successive IPO applications of small- and medium-sized enterprises (SMEs) in the real estate sector is the fact that they are struggling for survival.

Real estate SMEs were not able to make great profits as China's housing market cooled down. Besides, affected by China's tightened regulations for the real estate industry, liquidity squeeze and credit crisis in the bond market, real estate firms especially SMEs now have trouble in obtaining loans. 

While real estate giants turn to diversify their business, some SMEs in the industry chose to sell out their real estate assets for survival. For instance, Zhongtian Financial Group Co Ltd (000540.SZ) announced sale of its property business for 24.6 billion yuan (3.56 billion U.S. dollars) in March this year. 

Meanwhile, they are seeking to improve their financial conditions through IPO. 

The low A-share IPO approval rate this year has led to an increasing number of SME applicants for Hong Kong IPO.

It is noteworthy that the Hang Seng Index has sunk by 17.2 percent to 25,266.37 year to date and 82.52 percent of Hong Kong IPOs have dropped below the offering price as of early September.

Though enterprises are facing a falling stock market and likely to have lower valuation in Hong Kong, getting listed first is still the best way for those with high debt ratio.

Dexin China reported a debt ratio of 435.2 percent and 275.7 percent in 2016 and in 2017, respectively, and Midea Real Estate had a debt ratio of 624.7 percent and 118.9 percent in the two years.

To raise capital, some companies may even offer shares with discounted prices. 

For example, Redsun Properties Group Ltd. eventually priced its IPO at HK$2.28 (0.29 U.S. dollars) per share, only 56 percent of its net asset value per share of HK$4.07 (0.52 U.S. dollars).

Yan Yuejin, director of E-house China Research and Development Institution, held that for those SMEs that hold properties mainly in a single city such as Yincheng International, they should change their strategy, expanding business to major cities across China.

Email: zhanglingxiao@nbd.com.cn