Chinese property developer Golden Wheel Tiandi Holdings has raised HK$756 million ($98 million) from the first initial public offering of size in Asia this year. Encouragingly, the deal attracted good interest both from institutional and retail investors, suggesting that the appetite for new listings may be returning.
This allowed the company to fix the price towards the top of the range at HK$1.68, although sources noted that there was little price sensitivity and said that it could just as easily have price at the very top. The shares were marketed in a range between HK$1.38 and HK$1.72.
Demand has been picking up in the past month and with the most recent Hong Kong IPOs having traded relatively well, investors are becoming more willing to look at these deals, bankers say. Global equity markets also opened the year on a strong note and some investors who didn’t return to work until this week are now scrambling to catch up with those gains.
The window for IPOs early in the year is pretty short, however, as neither banks nor investors want the deals to straddle the Chinese New Year holidays in mid-February. Most observers therefore believe that the IPO activity won’t pick up in earnest until after that break.
However, pre-marketing is starting today for Chinalco Mining, which is returning to the market after calling off an earlier listing attempt in June last year. The company, which is a unit of state-owned Aluminum Corp of China (Chinalco) and the owner of a copper deposit in Peru, is seeking to raise about $400 million to $500 million from a Hong Kong IPO.
Also, bankers are expected to start pre-marketing for an IPO of Thailand’s BTS Skytrain next week, sources said yesterday. The railway operator may seek to raise as much as $1 billion from the listing of what will be Thailand’s first non-property-focused business trust.
Golden Wheel Tiandi
Golden Wheel is believed to have benefitted from the improving growth outlook in China as well as the fact that many investors are short the Chinese property sector.
Still, the sharp turnaround in sentiment for IPOs among retail investors is quite surprising. Whether it lasts will likely depend on whether Golden Wheel trades up in its debut next Wednesday, allowing investors to make an immediate profit.
According to sources, the 10% retail tranche was about 80 times covered, which triggered a clawback that increase the size of the retail tranche to 40% of the total deal. For sure, the retail tranche was small to begin with and even with the impressive coverage ratio, retail investors only committed a combined $800 million to the deal. But in light of the fact that the retail tranches of many Hong Kong IPOs last year were severely undersubscribed, this is not a bad outcome.
The most popular IPO among Hong Kong retail investors last year was that of PICC Group in December, for which they submitted orders worth a total of $3.1 billion.
After adjusting for the clawback and including the 15% greenshoe, Golden Wheel’s institutional tranche was about 25 times covered, the sources said. More than 100 institutional accounts participated in the transaction, including international long-only funds, qualified domestic institutional investors out of China, and hedge funds.
Part of the interest was likely due to the fact that Golden Wheel Tiandi is coming pretty cheap. At the IPO price, it is valued at a discount to its 2013 net asset value (NAV) of about 62% (pre-shoe) and at a price-to-earnings ratio of 5 times, sources said.
But another reason why long-only funds were looking at Golden Wheel, they said, was the fact that it has a greater focus on investment properties than many other Hong Kong-listed Chinese property companies that tend to focus primarily on the development of residential real estate. Golden Wheel’s main focus is also on the development of commercial properties that are connected to, or close to, metro stations and other transportation hubs in the Jiangsu and Hunan provinces, making it a bit of a niche player in the sector.
In 2011, the company retained more than 45% of its completed gross floor area (mostly shopping malls) for onward leasing to ensure a recurring rental income. During that year, about 15% of its revenues were generated from leasing and operational management, while close to 85% came from the sale of offices, residential properties and hotel-style apartments. The management is expected to remain flexible about how to grow the business and may sell or retain units depending on what is the most profitable at the time, one source said.
Another positive is that it doesn’t sit on a large landbank, but rather tends to develop its sites within 12 to 18 months of acquiring them. And with very little debt on its balance sheet post the IPO, the company is in a good position to grow the business through new land acquisitions.
Golden Wheel sold 450 million new shares, or 25% of its enlarged share capital. If the greenshoe is exercised in full, this will increase to 27.7%, while the total proceeds will swell to $112 million.
BNP Paribas and BOC International were joint bookrunners.
Chinalco Mining
Chinalco Mining was aiming for an IPO of up to $1 billion in June last year, but never launched the deal despite extensive pre-marketing activities. At the time, investors were facing volatile global financial markets due to worries about the deepening debt crisis in Europe and weaker growth in China.
When it returns to the market it is with a significantly smaller deal, which should be an easier sell. The company and its underwriters have also secured enough cornerstones and anchor investors to almost cover the deal, the source said. The improvement in market conditions – its comps have moved up, for instance – and investors’ confidence in China are other factors that have helped the deal to come back to the market, the person noted.
As per the current timetable, the roadshow is expected to kick off in the middle of next week and the pricing is expected on January 24, a source said yesterday. This should allow the stock is expected to start trading by the end of this month.
The Toromocho copper-polymetallic deposit in Peru, which is Chinalco Mining’s principal asset, is the core overseas platform for Chinalco’s non-aluminium, non-ferrous resources developments.
Sources have said that Chinalco Mining benefits from good name recognition in the region. Sister company Chalco, for example, is the biggest alumina and primary aluminium producer in China and is already listed in Hong Kong.
BNP Paribas and Morgan Stanley are global coordinators for the deal. CCB International, CICC, HSBC, and Standard Chartered join them as bookrunners.
