Chinese vegetable grower raises $170 million in Singapore IPO

China Minzhong Food Corp, a China-based vegetable grower and processor, has raised S$236.8 million ($170 million) from an initial public offering, and is set to become the first Chinese company in two years to list in Singapore.

As a play on Chinese consumer demand, the deal was well received and a source said the order book was dominated by high-quality institutions, including Fidelity and Prudential which came in as cornerstones, buying 6.667 million and 25 million shares respectively, or a combined 16% of the deal. The interest would also have been boosted by the fact that Government of Singapore Investment Corp is an existing shareholder in the company as are several other prominent fund management firms like Olympus and OCBC Capital.

Some of these existing shareholders, including GIC, did sell part of their shares during the IPO, but in the case of GIC, it still owns 16.5% of the company.

More than 40 institutional investors were said to have participated in the transaction, which isn't a lot. However, the deal is quite small and the company would have liked the fact that a large majority of them were long-only funds. About 70% of the demand came from Asia with the rest being generated out of Europe and the UK.

The price was fixed at the mid-point of the indicated range of S$1.07 to S$1.33, at S$1.20, which translated into 7.25 times its projected earnings for the fiscal year ending June 2011, or an adjusted price-to-earnings multiple of 8.25 for calendar 2010. The source said it could have priced higher, but the company chose to leave some money on the table for investors to ensure a good performance when it starts trading on April 15. No doubt it is also hoping to be able to exercise the 15% overallotment option that could boost the total proceeds to $195 million.

The final price pitched Minzhong at a discount versus Hong Kong-listed China Green (Holdings) which, according to syndicate analysts trades at an adjusted 2010 P/E multiple of about 10-11 times. While slightly larger than Minzhong, China Green is viewed as the closest comparable given that it too is an integrated player with both cultivation and processing operations.

Minzhong offered 197.344 million shares, of which 119.602 million were new. The remaining 39.4% were sold by New Oscar, Olympus, GIC and OCBC Capital. Five percent of the deal was earmarked for Singapore retail investors in a separate offering that kicked off yesterday and will stay open until April 13.

In a statement, Minzhong's CEO, Lin Guo Rong, said the IPO will provide the company with "the right platform to execute its expansion plans and tap on the strong global and domestic market demand for quality vegetables on the back of rising health consciousness and growing world population, which presents huge opportunities for Minzhong's future growth."

The company plans to use about S$56.9 million of the IPO proceeds to increase its production and processing capacity and another S$51.6 million to acquire or lease new farmland.

Minzhong sources fresh vegetables from 14 different Chinese provinces, which makes it less at risk from extreme weather conditions and also provides it with a consistent and stable supply of vegetables year round. It also offers more than 100 products that have been processed through various means, including air-drying, freeze-drying, fresh-packing and brining, and which it sells to customers in 26 countries.

J.P. Morgan was the sole bookrunner for the offering and also acted as a financial adviser to the company together with Kim Eng.