China Kingstone Mining Holdings, a marble mining company with operations in the Sichuan province in western China, kicked off investor education yesterday for a Hong Kong initial public offering that could allow the company to raise around $250 million to $280 million.
If successful, this will be the first sizable Chinese IPO in Hong Kong in 2011 after aluminium producer China Hongqiao Group scrapped its planned $2.2 billion share sale just before the Chinese New Year. Kingstone may also be the first of a series of mining and natural resources companies to sell shares in Hong Kong this year, if PricewaterhouseCoopers’ (PwC’s) projections are correct.
The accounting firm has said that the Hong Kong stock exchange will become one of the major stock markets in the world with a high concentration of mining and natural resources companies. In the next few months, there will be 10 to 15 such companies selling new shares on the exchange, PwC said.
The number of mining and natural resources-related IPOs in Hong Kong increased from three in 2008 to 13 in 2009 and the funds raised grew more than 140 times, according to the firm.
Kingstone makes marble blocks used in high-end buildings, such as luxury residential properties, hotels, office buildings, museums and memorial halls. The full production cost of its main product, marble slabs, is quoted at Rmb124 ($18.70) per square metre and the realisable selling price is estimated to be around Rmb500 to Rmb800 per square metre, leaving the company with a decent margin, according to Kingstone itself.
The company is the largest marble mine operator in China in terms of reserves and planned production capacity. It owns and operates the nation’s biggest beige marble mine, the Zhangjiaba Mine. However, this is Kingstone’s only mining project that is bringing in operating revenue and any delay or unwanted incident in its development could have an adverse affect on the company.
To minimise the potential risk, Kingstone plans to use the funds raised in the equity market to expand. Some 45% of the net proceeds will be used for capacity ramp-up; 30% for acquisitions and development of additional marble reserves; and 15% for distribution network expansion.
The company is planning to sell 25% of its enlarged share capital, with 90% of the offering targeted at institutional investors and 10% at Hong Kong retail investors. The final allocation is subject to standard Hong Kong clawback triggers.
The roadshow will start on February 28 and close on March 10 with the three-and-a-half-day Hong Kong public offering kicking off on March 7. The shares are expected to be priced on March 11 and the trading debut is scheduled for March 18.
Citi is the sole global coordinator and bookrunner for the deal.
Hongqiao, which is the fifth largest aluminium producer in China, planned to raise between $1.5 billion and $2.2 billion in an accelerated Hong Kong IPO last month. It kicked off the bookbuilding around one week before the Chinese New Year when the Chinese markets are usually quiet and most companies are holding off on their fundraising plans until after the holiday.
Hongqiao first delayed the retail offering by one day, but on the day of the pricing, decided to call off the deal altogether, citing deteriorating market conditions since the publication of its listing prospectus.
