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Now Under New Mismanagement
"In real estate you're getting overinflated profits from borrowing money to get cheap land and then selling at inflated prices; and then you've got a stock market that is valuing a dollar of earnings at about 40 or 50 times. So you've got a bubble on top of a bubble."It's funny too, because the situation he's referring to specifically here is that of SOHO-China, a real estate company who's recent $1.6 billion Hong Kong IPO grew 15% on it's first day of trading in an otherwise down market... oh yeah, and it's also the company now behind the Qianmen development which Andrea and I are looking into. Not only that, but the the success of the IPO was basically dependent on the Qianmen project "working out" for SOHO, given that the offering was for a price premium more than 1.6 times it's net asset value without the Qianmen project, but as this story in Marketwatch puts it:
But like any gamble, when the zeroes keep getting tacked on, the risk soon becomes impossible to pass up. SOHO's profit was 340 million Yuan in 2006, and this year it's set to be 1.62 billion Yuan. If the Qianmen project gets held up (hint: it won't) their profit will *only* climb to 1.86 billion, but if (when) it does, the 2008 profits are expected to come in at 2.63 billion Yuan. Given the fact that SOHO's IPO lit up the Hong Kong market with 15% growth on it's first day, it seems pretty clear that investors (including Saudi Prince Alwaleed Bin Talal) have more faith in the power of projected profits than China's heritage protection laws.The IPO price range's premium to NAV narrows to a maximum of 30% when the value of the Qianmen project is included, analysts said."It's really a gamble on whether you think the Qianmen project will get regulatory approval or not. After all, it's heritage sites we are talking about here," said an analyst with a mainland Chinese asset management fund, who declined to be named.