Although China Cinda Asset Management stole most of the headlines when it launched its Hong Kong initial public offering on Monday this week, there are a lot of other deals in the works right now – both in Hong Kong and elsewhere in the region.
Sure, they are not all the size of Cinda’s offering, which at $2 billion to $2.45 billion looks set to become the largest new listing in Hong Kong this year. And several of the IPOs involving Chinese issuers are close to fully covered by cornerstones or anchor investors even before they officially open their order books to ensure they will be successful amid the intense competition for investors’ attention.
But there are interesting deals out there that continue to keep investors alert, even as they try to navigate invites for Thanksgiving celebrations, cocktail events and dinners that tend to get increasingly frequent this time of year. Among the most talked-about IPOs right now are Qinhuangdao Port, which is already on the road, and Kerry Logistics Networks, China Everbright Bank and the spin-off of True Corp’s infrastructure assets in Thailand, that are all one or two steps behind.
And, as shown by the demand for Phoenix Healthcare’s Hong Kong IPO last week, investors are still ready to commit capital for “the right names in the right sectors” – assuming they come at a decent price.
Phoenix, which owns and operates private-sector hospitals and healthcare clinics in Beijing, attracted more than $5 billion of demand from about 300 institutional investors for its $191 million offering, including a lot of orders from both Europe and the US, according to a source On top of that, retail investors subscribed to more than 500 times the number of shares set aside for them, triggering a full clawback that increased the size of the retail tranche to 50% of the total deal.
Aside from the fact that investors obviously liked the company, sources attributed the success to an attractive valuation as well as a scarcity of supply in the healthcare sector both in China and the rest of the region.
The price was fixed at the top of the range, at HK$7.38, which translated into a 2014 price-to-earnings multiple of 25 times. The IPO was arranged by Deutsche Bank, Goldman Sachs and Bocom International and the company is due to start trading on Friday (November 29).
Not all listing candidates get this kind of reception, however, as demonstrated by Dongpeng Holdings, which was due to price on the same day as Phoenix. The ceramic tiles manufacturer, which counts private equity firm Sequoia as a pre-IPO investor and is also brought to market by Deutsche Bank and Goldman Sachs, this time together with BOC International, failed to get fully covered and was forced to re-launch the deal at lower price.
The new price of HK$2.94 is 20% below the bottom of the initial range of HK$3.68 to HK$4.55 and translates into a 2014 P/E multiple of 6.8 times, which according to a source compares with a global industry average of about 14 to 15 times.
The resized deal, which will raise just $95 million pre-greenshoe compared to an earlier plan to raise up to $146 million, was allocated on a provisional basis to institutional investors on Wednesday, while retail investors will need to reconfirm their orders from today until next Monday. The 10% retail tranche was fully covered to begin with.
The trading debut has been reset for December 9.
One banker blamed the failure partly on the crowded market and said small companies in less sexy sectors have a tough job fighting for relevance, given the large number of deals at different marketing stages right now.
That doesn’t stop them from trying though. Arguably, this is the very last chance to go public in 2013 and for issuers that based their listing applications on end-of-June financials, missing the year-end deadline also means they will have to update their numbers before they can return to the market, resulting in a delay of at least two months.
Below is a list of companies that, like Cinda, are already taking orders from institutional investors, or have started investor education with the aim of listing before the end of the year.
On the road:
Qinhuangdao Port
The coal-focused ports operator launched its institutional bookbuilding on Monday this week with the aim of raising between HK$4.36 billion and HK$5.56 billion ($562 million to $717 million). The deal was already 43% covered at the bottom of the price range at launch by seven cornerstones (all Chinese) who will invest a combined $240 million and sources said the entire deal was covered as of yesterday.
It is selling 16.5% of the company at a price between HK$5.25 and HK$6.70 per share, which translates into 12.4 to 15.9 times its projected earnings for this year (based on the joint bookrunner consensus) and 10.8 to 13.7 times next year’s numbers. Early this month, other ports operators listed in Hong Kong and Singapore traded at an average 2013 P/E multiple of 16.2, and a 2014 multiple of 13.4, according to one syndicate research report.
The deal is on the exact same timetable as Cinda, which means the order books will close on December 4, the final price will be set in the morning of December 5, Hong Kong time, and the trading debut is scheduled for December 12.
The company, which describes itself as “the world’s largest independent port operator for major dry bulk cargo in terms of throughput in 2012” but does most of its business (71%) handling coal for transport to other ports within China, is being brought to market by CICC, Citi, HSBC, JP Morgan and UBS with the first three acting as joint global coordinators.
Spring Real Estate Investment Trust
AD Capital-sponsored Spring Reit launched its roadshow last Friday and is due to close the order books tomorrow. It is seeking to raise between HK$1.67 billion and HK$1.77 billion ($215 million to $228 million) from the sale of 40% of the trust to public investors.
It is offering 439.5 million units, of which 77.7% are secondary, at a price between HK$3.81 and HK$4.03, which translates into a 2014 dividend yield of 6.9% to 7.3%. According to a source, the yield is “clean” meaning it isn’t enhanced by any form of income support.
The Reit owns two premium grade office towers in Beijing’s China central Place that include Deutsche Bank and its Chinese joint venture Zhong De Securities, SAP, Conde Nast, Tesco, White & Case and Bain & Co among their tenants.
Credit Suisse is the sole global coordinator, as well as a joint bookrunner together with Mizuho.
M&G Chemicals
Italy-based M&G Chemicals is one of the top-three producers of polyethylene terephthalate (PET) for use in plastic drinks bottles and other food and beverage packaging items. It kicked off the institutional bookbuilding yesterday, making it only the second Italian company to seek a listing in Hong Kong after Prada in 2011.
According to a source it has chosen to list in Hong Kong because 50% of the IPO proceeds will go towards the construction of the production plant in China that will produce a material known as MEG that is used in the making of PET. The company has no production plants in China this point, but the country is expected to be one of the growth drivers going forward, the source added.
It is seeking to raise between HK$3.88 billion and HK$4.58 billion ($501 million to $591 million) from the sale of 35% of the company. The shares are offered at a price between HK$1.65 and HK$1.95 apiece and three cornerstones, including one Danish and one Spanish company, as well as the investment arm of China Nuclear Engineering and Construction Group, have agreed to take up about $100 million worth of shares.
The order books will stay open until December 6 and the trading debut is set for December 16.
Citic Securities International is the sole global coordinator and bookrunner for the offering, making this the second Hong Kong IPO that the Chinese securities firm is leading on a sole basis. The other one was the $132 million listing of Pax Global Technology in December 2010, Dealogic data show.
Jintian Pharmaceuticals
Jintian also launched bookbuilding yesterday and is seeking to raise between $188 million and $273 million from the sale of 25% of the company. Of the total, 80% are made up of new shares, while 20% are existing shares that will be sold by three pre-IPO investors: CVC, DBS and an Asian affiliate of Advent International Corp named South East Asia Venture Investment (Seavi).
The distributor of pharmaceuticals is offering its shares at a price between HK$2.91 and HK$4.23 apiece, which translates into 11 to 16 times its projected earnings for 2014. The top end of the noticeably wide price range puts it on par with Hong Kong-listed Sinopharm, which is viewed as the key comparable and which is currently trading at about 16 to 17 times next year’s earnings. However, the bottom end of the range offers a decent discount and a source said there was pretty good momentum in that part of the range on day one.
The order books will close on December 5 and the trading debut is scheduled for December 12. Morgan Stanley is the sole bookrunner.
Hengshi Mining
Hengshi Mining has already completed its IPO and is set to start trading in Hong Kong today. The Chinese iron ore miner priced its offering over the weekend at HK$3.20 – just below the mid-point of the HK$3.10 to HK$3.40 range – for a total deal size of HK$1.2 billion ($155 million).
The IPO price values the company at 7.3 times its projected earnings for 2014.
The deal was supported by six cornerstone investors that bought a combined $90 million worth of shares, and was fully covered at launch when including anchor investors as well. According to sources, the bookbuilding did yield some additional demand, including a couple of international institutions, but overall it was a very China-focused order book.
The retail tranche was only 79% covered, which means some shares were reallocated from the retail tranche to the institutional tranche, resulting in 92% of the deal going to institutional investors. The retail portion was cut to 8% from 10% initially.
Bank of America Merrill Lynch and Credit Suisse were joint bookrunners.
Pre-marketing:
True Telecommunications Growth Infrastructure Fund
Bankers are currently on their second week of investor education for the telecom infrastructure fund that is being spun off from True Corp. The Thai telecom operator, which is controlled by the country’s richest man, Dhanin Chearavanont, is aiming to raise between $1.2 billion and $1.6 billion by spinning off part of its network infrastructure and selling at least 49% of the new fund to public investors through an IPO.
It will be only the second infrastructure trust to go public in Bangkok after the $1.4 billion IPO of BTS Rail Mass Transit Growth Infrastructure Fund (BTSGIF) in April this year.
The plan is to start the management roadshow and bookbuilding on December 2, which will allow True GIF to start trading on December 27. Bank of America Merrill Lynch, Credit Suisse, Siam Commercial Bank and UBS are joint bookrunners.
Kerry Logistics Network
Investor education also started on Monday this week for Kerry Logistics. The business is being spun off from Hong Kong-listed Kerry Properties and the parent company has said that it intends to distribute 50% of the new vehicle to its existing shareholders and sell up to 25% to public investors through an IPO.
According to sources, the current plan is to sell about 13% to 16% through the IPO pre-greenshoe, which suggests a deal size of $400 million to $500 million. The bookbuilding is expected to start on Monday next week (December 2) with the pricing scheduled for December 12 and the listing following on the 19th.
BOC International, Citi, HSBC and Morgan Stanley are joint bookrunners.
China Everbright Bank
Market watchers are also keeping an eye on the potential launch of a Hong Kong IPO for China Everbright Bank, even though it is expected to generate little demand from international funds. The Chinese lender, which is already listed in Shanghai and has tried to list in Hong Kong at least twice in the past two years, published a preliminary listing document on the Hong Kong stock exchange website on Monday, indicating that it is getting close to bringing a deal.
Sources said yesterday that the bank has decided to go ahead and the plan is to start investor education as early as Friday this week and potentially run a simultaneous bookbuilding for institutional and retail investors from December 10 to 13. The intention is to try and raise about $1.2 billion from the sale of 8% of the company.
Several sources close to the situation have earlier said that the deal would only go ahead if it was fully covered before launch and yesterday the talk was that this may even be a club-style deal going to a limited group of mainly Chinese investors and cornerstones, complemented by a normal retail tranche.
The reason for that is that the implied valuation based on the bank’s Shanghai-traded A-shares – at about 0.87 times its book value for the most recent quarter – and the restrictions on the IPO price in relation to the Shanghai share price make it difficult to offer shares in Hong Kong at a price that will attract much interest from institutional investors.
Also, China Everbright Bank is viewed to offer little diversification compared to the 11 Chinese lenders that are already listed in Hong Kong, so it is not a “must own”. Still, indications are that it will raise more than a billion dollars and therefore it cannot be ignored altogether. At the very least, investors are watching to see whether it can get done even with the odds stacked firmly against it.
CICC, Morgan Stanley and UBS are joint global coordinators and bookrunners. They will be joined by a number of other bookrunners, which based on the latest information include ABC International, BNP Paribas, BOC International, China Everbright Securities, Essence Securities and Haitong International.
