The department store operator priced the deal at HK$3.10 per share, or 20 HK cents above the bottom of the range, for a total deal size of HK$2.68 billion ($343 million). The shares had been offered in a range between HK$2.90 and HK$3.80.
On the one hand, the fact that there was enough demand to set the price above the low end can be viewed as encouraging, especially since this was the second time Maoye was in the market after it pulled its first attempt in January just before pricing. The re-launched deal was just under half the size of the first offering and was marketed on an accelerated basis over four days with the retail offering and the institutional bookbuilding taking place at the same time. This meant investors had to decide quite quickly whether to participate and the leads were able to get a good momentum going straight away. On the other hand, the fact that the deal didnÆt price at the bottom might limit the upside û or indeed, increase the risk of the stock edging lower when it starts trading on May 5.
The Hong Kong stockmarket gained every day but Friday last week, adding a combined 5.5% and boosting the confidence of investors to participate in the deal. It also helped that some of the comparables edged higher during the bookbuilding as it made MaoyeÆs valuations relatively more attractive. However, the lag time between pricing and the actual trading debut, means there is still a certain amount of price risk involved should the market take another dip.
The institutional book was fully covered after the first two days, which together with a sharp rebound in the Chinese market on Thursday, attracted a number of momentum players to the deal. More than half the orders came with price limits though and, according to various sources, a reasonable number of investors wanted to pay no more than HK$3, which equalled a 2008 price-to-earnings ratio of just over 20 times. Consequently, it seems likely that some potential investors had to be dropped from the deal as the price was set at HK$3.10. However, one banker familiar with the deal said a number of investors had moved up their limits once it became clear they would otherwise miss out and about 60% of the book went to high quality institutions.
Still, the fact that the pricing meeting, which was scheduled to start at 8pm Hong Kong time on Thursday, lasted through the night does suggest there were some tough discussions before the final decision was made. However, the fact that there were four joint bookrunners on the deal û Goldman Sachs, HSBC, JPMorgan and UBS û would also automatically have made it a drawn out process.
The institutional order book attracted about 130 investors, many of which were long-only funds, and was close to three times covered. The retail tranche, which accounted for 10% of the total deal size, was about 1.7 times subscribed.
The final price values Maoye at 21.1 times its 2008 earnings, which compares with 37.9 times for Parkson Retail Group at the time of pricing. The sector leader had moved up from about 35 times at the start of the week, returning to a level similar to where it traded when Maoye tried to price its first deal in January. Also over the past week, New World Department Store China rose to a 2008 P/E multiple of 34.1 times from 31 times. (The company has a fiscal year that ends in June and its fiscal 2009 P/E is at 24.4 times.) However, smaller regional player Golden Eagle Retail Group, which many observers say should be closest to Maoye in terms of valuation, was largely unchanged at 26.6 times.
This means Maoye was priced at a discount of more than 40% versus Parkson and at a 20% discount to Golden Eagle. It also came at a price per share that was 28% lower than the bottom end of the HK$4.35 to HK$5.65 price range it offered in January when Goldman Sachs was the sole bookrunner. Because the company was trying to sell 25% of the company in January, as opposed to 16.9% now, it could have raised $697 million even at the bottom of the range back then û twice the amount it will pocket from the current deal.
According to sources, the January order book was sufficiently covered at the bottom of the range, but the issuer walked away as it didnÆt want to price at the low end. At that time, issuers were also generally concerned that they would have to face a very difficult aftermarket had they decided to go ahead and complete their listings, and many believed they would be better off returning when the markets had stabilised.
The just completed deal comprised 863 million new shares plus a 15% greenshoe that could take total proceeds to as much as $394 million.
The fact that Maoye is a play on the China domestic consumption story undoubtedly helped attract investors. The sector is expected to do well as ChinaÆs GDP growth remains strong.
Maoye currently has 15 department stores targeted at medium- to high-end consumers and plans to add another seven stores over the next two years through organic growth. Five of those will be in the southern, south-western and eastern parts of China where its existing stores are also located. The other two will be set up in the Liaoning province and will mark MaoyeÆs first move into north-eastern China.
The company has a leading market position in four special economic zones (Shenzhen and Zhuhai in Guangdong province and Chongqing and Chengdu in Sichuan province), all of which are quite affluent with high GDP growth rates and high consumption power. It operates some of the largest department stores in China with six of its stores occupying at least 40,000 square metres.
¬ Haymarket Media Limited. All rights reserved.
