Nexteer Automotive, a Michigan-based steering and driveline supplier, has decided to postpone its Hong Kong initial public offering of between HK$1.83 billion and HK$2.52 billion ($236 million to $325 million), citing “adverse market conditions and significant market volatility”.
The company kicked off the management roadshow and institutional bookbuilding on June 14, braving a tough environment for IPOs, and the deal was scheduled to price yesterday. The Hang Seng Index shed 5.3% between the launch and the close of the order books on Tuesday and despite a 2.4% gain yesterday, it is still down 13% from a recent peak in late May.
The company was part of Delphi and General Motors, before GM sold it to China-based Pacific Century Motors in 2010. Chinese state-owned parts manufacturer AVIC Automobile Industry Holding then bought a 51% stake in Pacific Century Motors. Nexteer had chosen to list in Hong Kong because it wants to expand its business in China, according to one source.
The feedback from the roadshow was positive and investors liked the company and the management, as well as its China angle, a source says. But in light of the recent equity market sell-offs, investors aren’t too keen to make new investments. Most of the orders, including some large ones, came from long-only investors, the person notes. But in the end, the demand wasn’t sufficient to cover the deal.
Nexteer said in a filing to the Hong Kong Stock Exchange yesterday that it and its controlling shareholders “remain committed to proceed with the global offering and the listing in the future, when market conditions have improved, to unlock the true value of the company”. It added that it will “continue to monitor market conditions to assess the appropriate window for listing”.
The volatility in the global stock markets has already taken a toll on other IPO candidates in Hong Kong in recent weeks. Hopewell Hong Kong Properties, which was seeking to raise at least $670 million, pulled its IPO earlier this month after the market and its closest comparables fell significantly during the bookbuilding. And a couple of weeks before that auto parts maker Mando China, which was seeking to raise at least $213 million, called off its offering, citing adverse market conditions.
Macau Legend Development, which postponed its IPO on Friday last week amid a shortage of demand, re-launched the deal yesterday after reducing the size by more than half. It is now aiming to raise at least $277 million.
Nexteer was offering 720 million new shares, which represents 30% of its enlarged share capital, at a price between HK$2.54 and HK$3.50 each. The price range valued the company at a 2014 pre-greenshoe price-to-earnings ratio of 6.1 times to 8.5 times.
Investors compared Nexteer to other parts makers, such as Hong Kong-listed Zhejiang Shibao, Japan-listed JTEKT and US-listed TRW Automotive. According to Bloomberg data, Zhejiang Shibao is trading at a 2014 P/E multiple of around three times, while JTEKT is quoted at about 16.3 times and TRW at about 8.4 times.
One-tenth of the deal was set aside for the Hong Kong retail offering, while the remaining 90% was targeted at institutional investors. The deal came with a 15% greenshoe option of all new shares that could have increased the deal size to as much as $373 million.
However, the potential size had come down compared to the $400 million to $500 million that was talked about during the pre-marketing earlier this month.
Nexteer planned to use a majority of the proceeds for capital expenditure on new product programmes and to expand its manufacturing capacity, according to a term sheet. The rest was to be used for research and development, as well as working capital.
The company booked revenues of $2.2 billion last year. That made it the fifth-biggest steering supplier in the world in terms of revenue, with a global market share of about 6%, and the biggest steering supplier in the US, with about 31% of the market, according to the IPO prospectus.
In 2012, Nexteer derived 71% of its revenue from North America. China accounted for 8%, but offers great potential, especially after Nexteer became a subsidiary of AVIC, according to a syndicate research report. Mainly due to the rapid growth in the electric power steering segment and the China market, the company’s earnings are projected to grow at 43% a year from 2012 to 2015, the report says.
Nexteer currently serves more than 50 customers, the biggest of which is GM. Its other customers include Ford, Fiat, Chrysler and PSA Peugeot Citroen, and local original equipment manufacturers in regional markets such as China and India. It has supplied its products to GM for more than 100 years.
The company has 20 manufacturing plants, 10 customer service centres and five regional engineering centres in North and South America, Europe and Asia.
BOC International and J.P. Morgan were joint global coordinators and bookrunners for the IPO.
