Chinalco’s engineering unit raises $184 million from HK IPO

China Aluminum International Engineering Corp (Chalieco) has raised HK$1.43 billion ($184 million) from its initial public offering in Hong Kong after pricing the deal at the bottom of the indicative range.

While investor appetite for IPOs remains scarce due to persistent worries about the eurozone debt crisis, Chalieco followed copper miner China Nonferrous Mining Corp (CNMC) in relying largely on cornerstones and anchor investor to push its IPO across the line. Earlier this week, CNMC priced its offering slightly above the bottom of the range to raise $247 million.

Chalieco, which was wholly-owned by Aluminum Corporation of China (Chinalco) prior to the transaction, sold 363.16 million shares at HK$3.93 each. The deal was marketed in a range between HK$3.93 and HK$4.73, which could have allowed it to raise up to $221 million. The base deal represents about 13.6% of the enlarged share capital. There is a 15% greenshoe option, which could increase the total deal size to $212 million. All shares are new.

The listing is scheduled for July 6.

In the tough environment for IPOs, Chalieco launched the deal only after securing a group of cornerstone investors who committed to take up $100 million worth of shares, or 54.3% of the final base deal size. The six Chinese investors, who will be subject to a lock-up period of six months, include Seventh Metallurgical Construction, which is investing $35 million.

The institutional tranche was fully covered, but the 10% retail portion achieved a subscription ratio of only 5% due to weak market conditions, a source said. Including anchor investors, a majority of the demand came from Asia, the person said.

A number of other deals have been either pulled or postponed in recent weeks. Chinalco Mining, which is Chinalco’s copper mining unit in Peru, this week decided to push back its Hong Kong IPO, probably until after summer after failing to gain the desired traction with investors during pre-marketing. The deal size is also expected to be reduced to less than half the initial target of around $1 billion.

At $184 million, Chalieco’s offering is the fifth-biggest IPO in Hong Kong this year, according to Bloomberg data. The largest so far is Haitong Securities’ $1.67 billion offering, followed by the $580 million IPO by Sunshine Oilsands, the $319 million offering by Huadian Fuxin Energy Corp and CNMC’s $247 million deal.

Chalieco, which is a sister company of Hong Kong-listed Aluminum Corp of China Limited (Chalco), provides technology, engineering services and equipment for the nonferrous metals industry. It has business operations in all provinces in mainland China, as well as overseas projects in Vietnam, India, Mozambique and Saudi Arabia. However, about 85% of its revenues came from China in 2011, according to the prospectus.

It has a number of comparables, but one of the closest is Hong Kong-listed China State Construction International. The IPO price values Chalieco at a 2012 price-to-earnings ratio of 7.5 times pre-shoe, the source said. That compares with 11.5 times for China State Construction International. However, it is coming at a premium to another comp, Metallurgical Corporation of China, which trade at around 5.5 times.

Chalieco plans to use part of the proceeds for engineering and construction contracting projects, as well as for research and development.

The company had originally planned to raise as much as $500 million, but the recent decline in global stock markets and the poor sentiment for IPOs forced it to revise its expectations. The deal was postponed in March due to process- and legal documentation-related reasons.

CICC is the sole global coordinator and joint bookrunner together with GF Securities, a unit of Guangfa Bank. Morgan Stanley and UBS were also appointed as joint bookrunners initially, but were no longer working on the deal by the time it launched, likely due to issues related to the company’s businesses in Iran, according to sources. Some media reports said in March that the political tension between the US and Iran was having an impact on the IPO.

According to the prospectus, Chalieco entered into two contracts with an Iranian company and an independent third party in 2005 and 2008 to design and construct an aluminium smelting plant in Iran. But the company said it cancelled those contracts on May 8 this year.

In addition to Seventh Metallurgical Construction, the remaining five cornerstone investors are: Yunnan Tin (Hong Kong) Yuan Xin Company, China XD Group and Beijing Jundao Technology Development, which are taking $15 million each, and Yunnan Aluminum International Company and Jiangxi Transformer Science & Technology, which are investing $10 million apiece.

Ahead of a summit in Europe, Hong Kong’s Hang Seng Index ended yesterday’s trading down 0.8%. It has lost about 12% from this year’s peak in late February.

But in Malaysia, Felda Global Ventures, an agricultural commodities company that raised $3.1 billion through its IPO, had a strong debut. It ended its first day of trading yesterday 16.5% above the IPO price of M$4.55.