China Kingstone Mining, a Sichuan-based marble mining company, is looking to raise up to HK$1.94 billion ($250 million) from a Hong Kong initial public offering to expand its capacity and distribution channels.
If the deal sails through, it will be the first sizable IPO in Hong Kong this year. Aluminium producer China Hongqiao Group planned to raise up to $2.2 billion from a share sale in January, but called off the deal before pricing, citing weak market conditions and falling light metal prices. Kingstone also looks set to become the first marble miner to list in Hong Kong. However, investors may compare it with other listed mining companies and construction material plays.
The initial market response for the offering appears promising with five cornerstone investors having agreed to subscribe to a combined $48 million worth of shares, or between 19.2% and 28.7% of the deal depending on the final price. The cornerstones are all subject to a six-month lockup.
Four of the investors have each committed to purchase $10 million worth of shares. They are: Chow Tai Fook, a Hong Kong jewellery retailer; real estate tycoons Li Sze Lim, chairman of Guangzhou R&F Properties, and Hui Ka Yan, chairman of Evergrande Real Estate Group; as well as Bondic International, the investment arm of CC Land.
Gold Mantis Construction Decoration, a Chinese decoration company, has agreed to subscribe to $8 million worth of shares.
Kingstone kicked off the institutional bookbuilding yesterday by offering 580 million shares at an indicative price range of HK$2.25 to HK$3.35. That suggests the company could raise between HK$1.3 billion and HK$1.94 billion.
The offering, which accounts for 29% of the enlarged share capital, consists of 86.2% primary shares and 13.8% secondary shares. Ninety percent of the shares will be offered to international investors, while the remaining 10% has been earmarked for the Hong Kong retail offering.
The deal comes with a 15% greenshoe option which, if fully exercised, will allow the company to raise up to HK$2.2 billion by selling an additional 87 million new shares.
Based on the company’s 2011 forecast earnings, the price range translates into a price-to-earnings (P/E) ratio of 10.3 times to 15.3 times. For 2012, the P/E ratio falls to 4.8 times to 7.1 times, indicating expectations of significant earnings growth.
Kingstone’s 2012 P/E range pitches the company at a cheaper valuation than Hong Kong-listed cement companies, which are trading at an average 2012 P/E of 9.4 times. Construction materials companies are quoted at an average of 9.8 times, according to bankers.
The Hong Kong public offering will start on March 7, the final price will be fixed on March 11, and the trading debut is scheduled for March 18. Citi is the sole global coordinator and bookrunner for the deal.
Kingstone plans to use 70% of the proceeds from the offering to increase its capacity and 20% to expand its distribution channels. The company currently owns and operates one marble mine, the Zhangjiaba Mine, which is the largest beige marble mine in China, according to a preliminary IPO prospectus.
Kingstone makes marble blocks used in high-end buildings, such as luxury residential properties, hotels, office buildings, museums and memorial halls. The group has long-term sales contracts with seven customers in China to sell marble products.
Six of the customers mainly supply construction materials to large-scale property developers, governmental projects and decoration companies, while the seventh is primarily engaged in trading.
Despite growing concerns over China’s monetary tightening measures to curb the asset bubble, the country’s property sales volumes held up well in the third week of February, Goldman Sachs said in a report. “On a week-on-week basis, 12 out of 14 cities with data available saw volumes increase, with a group median of 130%,” the bank said.
