Harmonicare Medical's IPO delivers $205m

Harmonicare Medical Holdings, a private obstetrics and gynaecology hospital group, raised HK$1.59 billion ($205.1 million) in its Hong Kong initial public offering Thursday after pricing its shares at the top of the range.

The hospital group was offered at a compelling valuation to its peers, and therefore did not have trouble drumming up demand despite crashing A-share markets and turbulence caused by a potential Greek exit from the Eurozone. On Thursday, Eurozone finance ministers ruled out any further talks for a new bailout for Greece until its referendum on Sunday.

The Shanghai Stock Exchange Composite Index fell 3.59% on Thursday.

Despite the negative backdrop, Harmonicare sold 210.8 million shares at HK$7.55 per unit, the very top of its indicative price range, allowing the issuer to raise HK$1.59 billion. The institutional tranche was multiple times covered, with most of the demand coming from long-only institutional investors, hedge funds and Chinese asset managers, according to a source close to the deal. The deal was highly concentrated, with some 70% of the deal going to the top 20 accounts. There were over 130 lines in the book.

Retail investors were also keen on the offering, proving they can stomach the recent volatility. The retail tranche was nine times oversubscribed. Although this was not enough to trigger a clawback, it left more stock for institutions, which is better for the transaction, noted the source.

The source said the company -- ranked first in terms of group revenue in 2013 and the number of hospitals by year-end 2013 out of all of the private obstetrics and gynaecology hospitals in China -- was presented at a very good value proposition, noting that even at the top of the price range, both price-to-earnings and EV/Ebitda multiples came at a discount to its closest comps.

Phoenix Healthcare is currently trading at roughly 36 times its 2015 earnings and 24 times EV/Ebitda, and 24 times 2016 earnings and 18 times EV/Ebitda.

On a post-shoe basis, Harmonicare was offered at 33 times times 2015 earnings and 18 times EV/Ebitda, and 25 times 2016 earnings and 14 times EV/Ebitda, according to consensus syndicate numbers.

"The discount was there and that convinced a lot of tier one long-onlys that this represented good value," the source said.

Revenue increased to Rmb935.8 million ($150.7 million) in 2014, compared with Rmb833.2 million in 2013 and Rmb750.3 million in 2012.

Morgan Stanley and CCB International were joint bookrunners on the IPO.

Roughly 60% of the IPO proceeds will go towards opening new hospitals in Beijing, Chongqing, Hangzhou, Nanjing and Xiamen; 15% towards hospital acquisitions, 10% to upgrade existing facilities and add new equipment and 5% to remove its IT systems.