China NT Pharma Group raised HK$1.62 billion ($208 million) in a Hong Kong IPO last week, while Hilong Holdings pocketed HK$1.04 billion ($134 million) after a failed first attempt.
Both companies priced their shares at a discount to industrial peers. NT Pharma, a Shanghai-based supply chain and sales service provider for vaccines, sold 357 million shares at HK$4.54 each, the bottom end of an indicated price range that went up to HK$6. The final price translated into a price-to-earnings (P/E) ratio of 16.4 times, based on the company’s 2011 projected earnings. That is a deep discount to its close competitor China Medical System (CMS), which is currently trading at 35 times P/E, also in Hong Kong.
A source close to the deal said that NT Pharma’s attractive valuation and the huge potential market in China’s healthcare industry helped to attract interest. The deal’s global offering was multiple times covered and the Hong Kong retail tranche was around six times covered.
More than 70 institutional investors, who were a balanced mix of long-only and hedge funds from Asia and the US, took part in the deal.
CMS’s strong performance also helped to attract orders, according to the source. CMS, which raised $129 million in its IPO last September, has enjoyed a 20% rally in its share price during the past month. The stock is currently trading 67% higher than its IPO price of HK$5.06.
Shares in NT Pharma will start trading on April 20 and investors in the deal will be hoping for a similar return.
NT Pharma distributes 19 types of vaccines made by global and domestic vaccine manufacturers. It made a gross profit of Rmb663.2 million ($100.4 million) in 2010.
Goldman Sachs and UBS are joint bookrunners of the deal.
Hilong
Chinese oilfield-equipment maker Hilong fixed the price of its shares at HK$2.60 each, slightly above the bottom end of an indicated price range of HK$2.50 to HK$3.27. Based on the company’s 2011 forecast earnings, the final price stands at 9.1 times P/E.
That represents a discount to Hilong’s domestic competitors — Shandong Molong Petroleum Machinery and Anhui Tianda Oil Pipe — which are currently quoted at P/E ratios of more than 10 times and 17 times, respectively, in Hong Kong trading.
The company sold 400 million shares, or 25% of its enlarged share capital. Some 360 million shares, or 90% of the total, were offered to international investors and the remaining 40 million, or 10% of the deal, went to the Hong Kong public offering.
The deal was fully subscribed on the first day of bookbuilding. The international offering was “well covered” by more than 65 institutional investors, which were mostly long-only and hedge funds, according to sources. Most of the orders came from Asia, with some from Europe and the US.
Despite its modest size, the deal found support from two cornerstone investors. AVIC-CCBI Fund, an investment fund focused on avionics and air-traffic-control-system manufacturing, agreed to subscribe to $20 million of shares at the final price. Cheerful Link Holdings, which is owned by Larry Yung, the former chairman of Citic Pacific and a veteran energy and natural resources investor, has committed $10 million to the deal. Both cornerstones have six-month lock-ups.
The shares will start trading on April 21. Bank of Communications’ securities unit, Morgan Stanley and Standard Chartered were joint bookrunners of the deal.
The deal was Hilong’s second try at a Hong Kong IPO. It first came to the market last month with an offering of the same size, but with a richer price range of HK$2.50 to HK$3.70 for a deal that could have raised between HK$1 billion and HK$1.48 billion. It later called off the deal, blaming weak market conditions.
