Rongsheng completes third largest IPO in Hong Kong this year

Two more initial public offerings priced in Hong Kong on Friday, pushing the year-to-date IPO volume in this market to $45.6 billion and increasing the gap versus the previous IPO fundraising record of $43 billion, which was set in 2006.

The biggest of the two was China Rongsheng Heavy Industries Group, a Chinese shipbuilder, which raised HK$14 billion ($1.8 billion) in what was also Hong Kong’s third largest initial share offering this year after AIA Group and Agricultural Bank of China.

However, the most popular of the pair – especially with retail investors – was Citic Dameng Holdings, China’s largest manganese producer, which raised HK$2.06 billion ($266 million). Sources say the fact that the company is a member of the well-known Citic Group and is a mining company with sizeable earnings already (contrary to several other mining companies looking to list in Hong Kong these days) helped to attract investors to the deal. Or as one source put it: “There are so many deals out there and unless it is dirt cheap, it’s hard to get investors to do the work, especially on companies that require a massive discounted cash flow (DCF) analysis. If it makes money already it is a bit easier.”

A reasonable valuation obviously didn’t hurt either. In the end Citic Dameng’s 10% retail tranche was more than 340 times covered, triggering a full clawback that increased this tranche to 50% of the total deal. The institutional tranche too was well covered and attracted hundreds of investors, sources said.

This allowed the deal to price at the top of the range at HK$2.75 for the maximum proceeds. If the 15% overallotment option is also exercised in full, the company will raise $306 million. The shares were offered in a range between HK$2.10 and HK$2.75.

Perhaps due to the larger size, the demand for Rongsheng was a lot more price sensitive. However, sources noted that the quality of the institutional investors was high with the order amount heavily skewed towards long-only funds. According to one source, two-thirds of the top-20 allocations went to long-only accounts, while other buyers included hedge funds and China specialist funds. There was no information on the total demand from institutional investors, but some 250 or so accounts were said to have submitted orders.