Hong Kong tycoon Li Ka-shing’s Hong Kong Electric Investments has raised HK$24.1 billion ($3.1 billion) from its IPO, after pricing the deal at the low end of guidance.
HK Electric, a trust spun-off from Hong Kong-listed Power Assets Holdings, priced the deal at HK$5.45, the low end of the guidance range of HK$5.45-$6.30, representing a 2014 yield of 7.24%.
The price of the offering mirrors investor expectation as they showed lukewarm appetite to the assets during bookbuilding. The comparable HKT Trust, an infrastructure business trust listed in Hong Kong, is currently trading in the secondary market at a yield of 5.6%.
The company already marked lower expectations in price by setting a higher yield of 6.26%-7.24%, compared to 5.5%-7.26% given in the pre-marketing process. It also decided to sell 4.43 billion units, or 50.1% of the trust, compared to the original target of 50.1%-70%.
The Hong Kong public offering was single-digit times covered, but did not trigger the claw-back system - which means it was less than 10 times covered, according to one source.
Meanwhile, the institutional tranche was oversubscribed. More than 100 accounts including long-only, hedge funds, high-net worth and sovereign wealth funds participated in the book. The company also sold $200 million shares in a public offering without listing in Japan and managed to find some demand there.
Some fund managers said that concern of US Federal Reserve tapering has pumped up interest rates and bond yields and they are less willing to invest in such yield stocks.
“To buy yield plays at this moment is a big risk,” said one Hong Kong-based fund manager.
Meanwhile, a more positive outlook for the global economy in 2014 will boost investors’ confidence in Hong Kong’s stock market and increase demand for higher-growth shares.
An example is Honworld Group, an issuer that closed its book on Wednesday, which priced at the high end of guidance.
The company, a Chinese manufacturer of cooking condiment products, is selling 125 million new shares, or 25% of the enlarged share capital, at an indicative price range of HK$4.95%-HK$7.15%, translating to a 2014 price-to-equity ratio of 10-15 times.
The Hong Kong public offering was more than 1,000 times covered, while the institutional tranche was double-digit times covered.
Also, the IPO of Magnum Entertainment Group, the night club operator, was 3,500-times oversubscribed. It is set to become the first club to list in Hong Kong after raising HK$126 million.
IPOs such as Honworld’s HK$894 million listing are usually welcomed by Hong Kong retail investors because of their smaller sizes — meaning a stronger interest in speculating and thus a possible bigger share price rise after listing.
However, some institutional investors said they liked the idea that Honworld’s products are necessities for daily life, and the market remains a high growth. According to the prospectus, China’s cooking wine market, the company’s major target, grew at a CAGR of 23.4% from 2008 to 2012, and is expected to grow at a CAGR of 20.3% from 2012 to 2017.
Some other fund managers worried that they would lose money if they bought into a Li Ka-shing listing. For example, if they had invested in Hutchison Port Holdings Trust and Hui Xian Real Estate Investment Trust, they would have lost 32.7% and 27.5% respectively since listing, according to data from Dealogic.
HK Electric eventually got its deal done with support from the shareholder of its parent company and cornerstones.
Cheung Kong Infrastructure, also controlled by the Li family, holds a 38.87% stake in Power Assets and has fully taken up its entitlement to the trust units and bought additional units, according to a CKI statement.
HK Electric also secured $1.168 billion or 37% of the float from State Grid International Development and Oman Investment Fund, giving investors some confidence in the deal. The Chinese state-owned group took $1.118 billion, or 35.9%, a large commitment as the company is actively looking for opportunities in buying overseas assets.
Goldman Sachs and HSBC were joint global coordinators and joint bookrunners on the HK Electric deal, while Macquarie is solely arranging the Honworld deal.
