WH Group, the Chinese pork producer that pulled its high-profile $5 billion initial public offering earlier this year, raised $2.05 billion in a re-launched deal, buoyed by rallying Asian stock markets.
The pork producer sold 2.56 billion shares at a fixed price of HK$6.20 per unit, people familiar with the situation said on Tuesday night.
WH Group’s re-launched deal was offered at a cheaper valuation, with the fixed price putting the company’s forward p/e at 11.5 times 2014 earnings, much more attractive than the 15 to 20.8 times 2014 earnings marketed in the first attempt.
Institutional investors were keen to snatch up the company’s shares at this valuation, with the syndicate and issuer locking in 30 anchor investors — including long-only institutional investors, sovereign wealth funds and hedge funds — before the bookbuild kicked off last week. The institutional tranche was multiple times covered.
The retail take-up was also strong, with the 5% retail tranche oversubscribed 54 times, enough to trigger the 10% clawback set aside for Hong Kong investors, sources told FinanceAsia.
It was a surprise for those working on the deal, who did not expect much interest from the retail community once details from the new deal emerged last week. Retail investors typically avoid deals that fail to come to market at the first attempt.
The deal represents 18% of the enlarged share capital. WH Group has the option to sell additional shares once it lists, which could boost the amount raised to $2.36 billion.
Sources attribute strong retail demand to rallying markets. The MSCI Asia Pacific Index is at its highest level since 2008 and is up 9% year-to-date, while Hong Kong’s Hang Seng Index is up 5% year-to-date.
Restructured deal
Sources say much of the credit should go to the syndicate — downsized from a record 29 banks to just two, Morgan Stanley and BOC International — for their successful restructuring of a deal that was initially too punchy and aggressive.
In addition to downsizing the deal to HK$6.20 from the initial HK$8 to HK$11.25 range, the secondary tranche was scrapped, which eliminated the overhang created by shareholders CDH, Goldman Sachs, Temasek and New Horizons, who all planned to sell their stakes in the company as soon as it went public.
In the new terms, the company’s existing management, which own 42.6%, are subject to a three-year lockup, while CDH, which owns 38.1% and is the second largest shareholder, is locked up for one year.
Other shareholders, including Goldman, Temasek and New Horizons, are only subject to a six-month lockup but sources close to the deal said this should not create a significant overhang, simply due to the size of these investors’ stakes — of the three mentioned, Goldman holds the most with a 4% stake.
WH Group may not be able to pay down the debt it took on when it acquired Smithfield Foods last year for $7.1 billion. Still, others say there are plenty of reasons to be optimistic about the company.
The group reported record first-quarter earnings, with Smithfield Foods posting net income of $105.3 million in the first three months of the year, a 479% increase on the year-ago period. And combining the Chinese and US segments rose 225% year-on-year to $407 million.
Many anticipate that the smaller deal size will also help aftermarket performance.
WH Group’s successful listing will undoubtedly boost confidence in Hong Kong and may bode well for IPOs in the second half of the year — China Grand Automotive Services is looking to raise $1 billion.
