Hilong Holding, a Chinese oilfield-equipment maker that cancelled its planned $190 million IPO last month, has returned to the market with a downsized deal.
The revised indicated price range is HK$2.50 to HK$3.27, compared to a HK$2.50 to HK$3.7 band the company originally set. The number of offering shares remains the same at 400 million, which means Hilong aims to raise up to HK$1.31 billion ($168 million), or HK$170 million less than it first planned.
The company kicked off the bookbuilding yesterday and the market demand was said to be “very good”, according to sources.
Hilong decided to re-launch the deal thanks to a significant improvement in market conditions since it called off the deal in March, said the source. Hilong cancelled the deal on March 17, the day the share price was expected to be fixed, citing unfavourable market conditions. At the time, it didn’t give details about when it would re-launch.
The Hang Seng Index has risen nearly 9% since the company called off the deal. Rising oil prices, which have climbed 7.6% during the past three weeks and reached a high of $126 a barrel last Friday, are also helping Hilong to win investor confidence.
Despite the deal’s modest size, it has secured two cornerstone investors. AVIC-CCBI Fund, an investment fund focused on avionics and air-traffic-control-system manufacturing, has agreed to subscribe to $20 million worth of shares at the final price. Cheerful Link Holdings, which is owned by Larry Yung, the former chairman of Citic Pacific and a veteran energy and natural resources investor, has committed $10 million to the deal. Both cornerstones have six-month lock-ups.
Based on Hilong’s 2011 forecast earnings, the offering prices translate into a price-to-earnings (P/E) ratio of 8.8 times to 11.5 times. The higher end of the P/E range pitches the company at a premium compared with its domestic competitors, Shandong Molong Petroleum Machinery and Anhui Tianda Oil Pipe, which are quoted at around 7 times to 9 times 2011 P/E in their Hong Kong trading.
The offering, which accounts for 25% of the company’s enlarged share capital, consists of all primary shares. Some 360 million shares, or 90% of the total, are being offered to international investors and the remaining 40 million, or 10% of the deal, are earmarked for the Hong Kong public offering.
The deal comes with a 15% greenshoe option that, if fully exercised, would allow the company to raise up to HK$1.5 billion by selling an additional 60 million shares owned by controlling shareholder Hilong Group.
The shares will be priced on April 14 and the trading debut is scheduled for April 21. Morgan Stanley and Standard Chartered are once again joint bookrunners of the deal. Bank of Communications' securities unit has been added as a joint bookrunner for the relaunch.
Hilong will use the proceeds from the transaction to fund the expansion of its oilfield services and increase its output of coating materials. It will also upgrade drill-pipe production lines and repay bank loans, according to the company.
The record-high oil prices in 2008 helped Hilong make $74.8 million net profit that year, but the company's net earnings narrowed to $16.6 million the next year due to a significant slowdown in oil drilling activities during the financial crisis. Its net profit for 2010 was back up to $34.7 million after the economic recovery, according to the IPO prospectus.
However, Hilong has a limited business history for investors to evaluate since the company only started making drill pipes in 2005 and entered the oilfield services business in 2008.
