The typically busy post-summer share sale season has shifted up a gear with initial public offerings from financial advisory firm China Renaissance and state-owned gold miner Shandong Gold.
The two companies launched their deals on Thursday and hope to raise as much as $1.15 billion combined.
Shandong Gold, which is majority-owned by the Shandong provincial government, is the bigger of the two IPOs as it seeks to raise between HK$4.8 billion to HK$6 billion ($614 million to $767 million) pre-greenshoe.
Its Reg S and 144A deal features 327.7 million shares – 15% of the company’s enlarged share capital – offered at HK$14.7 to HK$18.38 each.
Concurrently, China Renaissance plans to raise $344 million to $377 million by selling 85 million shares, or 15.5% of its enlarged share capital, at HK$31.8 to HK$34.8 per share.
The two new IPOs come hot on the heels of Meituan-Dianping and Haidilao, which started bookbuilding earlier this month. The Chinese online-to-offline services provider priced its $4.2 billion deal on Thursday, while the hot-pot chain is set to price its flotation worth up to $963 million on September 17.
Altogether, the quadruple helping could drive Hong Kong's monthly IPO volume to more than $6.3 billion, potentially making it one of the busiest Septembers since 2009, when $12.3 billion worth of IPOs were completed, according to Dealogic.
Intriguingly, all these IPOs are being launched at a time when the Hong Kong stock market is under pressure amid worries that the trade war between China and the US could soon be reflected on corporate earnings as it intensifies.
Hong Kong’s benchmark Hang Seng Index has been on a prolonged losing streak since early June and has shed 10.5% of its value since the beginning of the year. It ended at 26,345 points on Wednesday – its lowest level in more than a year – before rebounding by 2.4% on Thursday.
But the weak secondary market, counter-intuitively, may yet benefit the IPOs as public investors are spurred to turn to the primary market for potential profit-making opportunities.
That has already been shown in Meituan-Dianping’s IPO, which has received solid investor interest, according to bankers familiar with the situation, and was able to price its deal at the upper half of the indicative range.
CHINA RENAISSANCE
Despite being the smaller of the two deals, China Renaissance is likely to grab more investor attention.
It promises to be only the second pure-play investment banking and advisory firm listed in Hong Kong after Bocom International but is also closely related to the technology theme that has dominated Asia’s primary market since last year.
Founded in 2004 by former Credit Suisse and Morgan Stanley investment banker Bao Fan, China Renaissance found success in the highly competitive investment banking and advisory industry by focusing on early-stage Chinese technology start-ups.
The advisory firm adopted the strategy when most bulge-bracket investment banks were focused on large state-owned enterprises and mega private institutions.
Its efforts only started to bear fruit after 2010 when the global investment community begun to appreciate the untapped potential of Chinese technology companies, particularly when e-commerce giant Alibaba raised a world-beating $25 billion in New York in 2014.
Some of the landmark deals China Renaissance has worked on include the 2015 merger of Didi Dache and Kuaidi Dache, which created China’s largest ride-hailing firm. It was an advisor on the $15 billion merger between Meituan and Dianping too, which created the country’s largest internet-based services provider.
China Renaissance was also a bookrunner on e-commerce giant JD.com’s $2 billion listing in 2014. More recently it worked on technology IPOs including iQiyi's $2.4 billion US listing and China Literature's $1.1 billion float in Hong Kong.
The fact many Chinese tech firms chose to list in the US implies China Renaissance was able to dodge competition from other Chinese investment banks since many of them do not have licenses to advise on US listings.
At the same time, China Renaissance is often an investor in some of the companies it advises. For instance, it was an early-stage investor in Meituan in 2012 and Dianping in 2014, which subsequently helped it to secure a sole financial advisory role in the internet giant’s jumbo IPO earlier this month.
The company has secured three cornerstone investors for its IPO, namely Alipay Hong Kong ($50 million), Snow Lake ($50 million) and LGT Group Foundation ($25 million). It is scheduled to list on September 27.
Goldman Sachs and ICBC International are joint sponsors of the IPO.
SHANDONG GOLD
The larger IPO from Shandong Gold is expected to grab less attention than China Renaissance because the state-owned gold miner is already listed in Shanghai – with a free float about twice the size of its upcoming Hong Kong floatation.
The company also enjoys little rarity value because there are already multiple metal miners listed in Hong Kong such as Zhaojin Mining, Zijin Mining and Real Gold Mining.
Aware of the challenges, Shandong Gold's senior management are proposing to sell shares at a fairly steep discount to its Shanghai-listed shares to entice investors.
Based on Shandong Gold’s Rmb23.24 Wednesday close in Shanghai, its Hong Kong IPO offer price of HK$14.70 to HK$18.38 represents a discount range of about 31% to 45%.
By comparison, Zhaojin Mining’s H shares trade at a discount of 26.2% to its A shares, while Zijin Mining trades at an A-H spread of about 32%.
Shandong Gold has secured five cornerstone investors for its IPO including China Structural Reform Fund ($150 million), ICBC Asset Management ($97 million) and CCT China Merchant Buyout Fund ($70 million). Sparky International will invest $50 million and China National Gold Group will invest $45 million. It is expected to list on September 28.
CCB International, China Securities International and ICBC International are joint sponsors.
