The CNOOC name attracted a lot of attention to the offering and like other recent Hong Kong IPOs, ChinaBlue ended up heavily oversubscribed both by institutional and retail investors. CNOOC, which is also the parent of Hong Kong-listed CNOOC Ltd, will hold 62.7% of ChinaBlue at the time of listing or 59.4% if the greenshoe is exercised in full.
According to a source close to the offering, the institutional tranche was more than 50 times oversubscribed pre-clawback with orders from over 500 accounts, even though joint bookrunners JPMorgan and UBS decided to close the books two days early. The institutional offering became quite small after the company locked up close to 34% of the deal with one strategic investor and four corporate investors. At that point, it made little sense to continue to accumulate more orders, says the source.
Retail investors subscribed for more than 475 times the amount of shares initially earmarked for them, triggering the maximum clawback and boosting the retail tranche to 50% of the total deal from 10%. Taking that into account, and deducting the portion set aside for strategic and corporate investors, other institutional buyers will get only about $55 million between them pre-greenshoe.
Institutional demand came predominantly from Asia, but one source notes that there was also a fair amount of ôquality demandö from Europe and the US.
ChinaBlue came on the heels of a string of heavily subscribed IPOs in the Hong Kong market from sportswear manufacturer Win Hanverky, supermarket operator Beijing Jingkelong and the MainlandÆs largest privately-owned lender China Merchants Bank. All three of these have also had strong trading debuts, with China Merchants finishing 24.9% higher on its first day last Friday, having soared as much as 33.8% intraday.
ôThis deal (ChinaBlue) reinforces the current strong market and hopefully people will make money on this one too as that will help the next deal along,ö says one observer.
Currently in the market is Shui On Land, which will close the books on its up to $797 million offering today (September 25), while fellow property developer SPG Land will keep its up to $157 million IPO open until Friday. Capturing the bulk of investor attention though will be Industrial and Commercial Bank of ChinaÆs mega-offering, which will start pre-marketing early this week.
The bank is said to be seeking as much as $19 billion in the first dual H-share and A-share listing ever.
ChinaBlue offered 1.4 billion new shares, or 32% of the company, at a price between HK$1.38 to HK$1.90 per share. There is a 15% greenshoe, which could raise the maximum proceeds to $394 million.
The final price of HK$1.90 values the company at 9.7 times its 2006 earnings projection, which at the time the roadshow started was in line with an average 2006 PE of 9 times for its Mainland comparables. It is also on par with Norwegian fertiliser producer Yara International, which has agreed to buy 10% of ChinaBlueÆs IPO, but well below Canada-based Agrium which, due to its larger size and broader product line, trades at a forward PE of about 17 times.
Since the launch of the IPO most of the comparables have been trading up, however, resulting in ChinaBlueÆs offer looking more attractive. In addition, the underwriters are said to have been arguing that ChinaBlueÆs state of the art production facilities, which makes it one of the most efficient and profitable companies in the industry, and its experienced management justifies a valuation premium over its domestic peers.
The company uses natural gas to produce 1.8 million tonnes of urea fertiliser (a nitrogenous fertiliser also known as carbamide) per year, making it the second largest producer in China after PetroChina. It currently has two urea production facilities in Hainan and Inner Mongolia, which source natural gas from CNOOC and PetroChina.
ChinaBlue is also in the process of quadrupling its production capacity of methanol through the construction of a new plant that will have an annual capacity of 600,000 tonnes when it starts commercial production in January 2007.
Methanol has numerous industrial uses and part of the proceeds from the IPO will go towards the construction of a production facility for polyoxymethylene
(POM) plastics that will use some of the companyÆs methanol as raw material.
The expansion of its methanol business is expected to support earnings growth in the high single digits in the future, compared with flat earnings growth for fertiliser producers as a group, observers say. ChinaBlue is forecasting a full-year profit of Rmb880 million, which represents 7.3% growth over last yearÆs recurrent net earnings of Rmb820 million.
ôInstitutional investors find the methanol story pretty exciting,ö the observer says. ôTheir view is that the urea business will provide stable earnings, while the expansion into methanol can be a real growth kicker.ö
The company is also in a good position to benefit from an expected consolidation in ChinaÆs fragmented fertiliser industry.
As a result of its investment, NorwayÆs Yara will hold a 3.18% stake in the company at the time of listing. That will increase to 3.49% if the greenshoe is exercised in full.
Meanwhile, Henderson Land chairman Lee Shau Kee, Chinese Estates, the investment arm of Bank of China group and a unit of Cinda Asset Management called Well Kent, have committed to buy about $82 million worth of shares, which will give them a combined stake of approximately 7.7% of the company at the time of listing.
The trading debut is scheduled for September 29.
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