China Flooring Holdings, a leading wood flooring company on the mainland, kicked off bookbuilding for an initial public offering in Hong Kong yesterday that could allow the company to raise between HK$1.1 billion and HK$1.56 billion ($142 million and $202 million).
The offering comes at a time when Shanghai Pharma, one of China’s leading drug distributors, and MGM China, a Macau-based casino, are in the market looking to raise $2.2 billion and $1.5 billion, respectively, through new share sales. That suggests the flooring maker will need to fight for investor interest with bigger issuers.
In its favour, China Flooring has a unique story. The company, which makes and sells retail flooring products in China, is likely to become the first home improvement player to list in Hong Kong, offering investors a new industry to buy into.
China Flooring’s prospectus claims that 71% of China’s floorspace was uncovered in 2009, which apparently works out at 55.3 billion square metres. That figure will shrink to 65.9% by 2014, the company says, as disposable income and living standards continue to rise.
To make the most of that demand, China Flooring bought the rights to harvest 46,347 hectares of standing timber in Peru in December 2009 for Rmb19 million ($2.87 million), adding to the company’s 4,445 hectares of forest assets in Southwest China’s Yunnan province. As of the end of 2010, the company had a distribution network that consisted of 2,100 exclusive distributors and 2,900 retail stores located in more than 1,600 cities in the country. It made a net profit of $51 million last year.
The Guangdong-based company is offering 25% of its enlarged share capital, or 373 million shares, at HK$2.95 to HK$4.20. The indicated price range translates into a 2011 price-to-earnings multiple of 10.8 times to 15.4 times.
Since China Flooring is the first company of its kind to list in Hong Kong, there are no existing stocks on the city’s bourse to compare the company with.
The deal comes with a standard 15% greenshoe option, which, if fully exercised, will allow the company to raise up to HK$1.8 billion through an additional 55.95 million shares.
The company started bookbuilding for institutional investors yesterday and the shares will be priced on May 19, with a trading debut booked for May 26. HSBC, Morgan Stanley and Standard Chartered Bank are the bookrunners.
