China Railway Materials Commercial Corp (CRM), a leading provider of railway construction materials and logistic services, plans to raise Rmb10 billion ($1.5 billion) from a dual-listing in Shanghai and Hong Kong next year -- a move seen by analysts to take advantage of Beijing's railway-building spree.
Liu Guoping, vice-president of CRM, said the group plans to complete a company restructuring by the end of August and to offer A-shares in Shanghai and H-shares in Hong Kong in 2011. He announced the plan while attending the Mining & Asia Focus 2010 conference in Shanghai yesterday, according to reports by several different Chinese media. Liu didn't give details on the share sale.
The announcement comes at a time when several major deals are being either cancelled or delayed due to volatile market conditions. The latest Asian issuer to suffer such a fate was Chinese upstream oil company MIE Holdings Corp, which yesterday postponed its already downsized New York IPO. The company was initially due to price the deal last Thursday -- the day the US market plunged close to 1,000 points intraday amid fears about the European debt crisis.
Analysts say if CRM's offering were to happen next year, the company may have very strong pricing power thanks to a potential improvement in market conditions and the Chinese government's aggressive investment in the nation's railway system in coming years. "The country's railways will remain a hot investment [topic] till 2012. Railway builders have received an influx of orders since 2009," said Li Zhirui, an infrastructure analyst at First Capital Securities.
China's investments in its railway system jumped 70% in 2009 and is likely to surge another 16% this year as Beijing injects a total of Rmb700 billion into the railroad network in 2010, according to Li.
The popular dual-listing of China Railway Construction Corp, one of CRM's major customers, may also help attraction attention to a CRM listing. The Hong Kong portion of CRCC's 2008 IPO was 80 times covered by institutional investors and 291 times subscribed by retail investors.
CRCC raised a total of $5.46 billion from its listing in Shanghai and Hong Kong after selling 2.45 billion A-shares at Rmb9.08, and 1.7 billion H-shares at HK$10.70 ($1.37). Both tranches were priced at the top of the indicated ranges. Citic Securities helped arrange both the Shanghai and Hong Kong portions of the IPO, while Citi and Macquarie sponsored the Hong Kong offering.
The IPO price valued the railway builder at a 28.7 times is forecast earnings for 2008. It is now trading at a price-to-earnings multiple of about 12.8, based on projected 2010 earnings.
CRM joins domestic competitors including Metallurgical Corp of China and CRCC in selling equity to fund overseas expansion. The company agreed earlier this year to buy a stake in African Minerals for $250 million.
It will help develop the African company's iron ore project in Sierra Leone by renovating an existing railway line and building 220 kilometres of track in 2011. In return, the railway material group hopes to ship about 20 million tonnes of iron ore to the Chinese mainland from Africa each year, according to Liu.
Liu said CRM will stick to its strategy of pursuing overseas investments, but may switch focus from Australia and Brazil to other countries such as West Africa.
"Infrastructure companies like CRM have to look beyond the Chinese mainland for both resources and market development purposes, because normally railway investment would reach a peak after three or four years of heavy spending, and the companies need to export their products and services," said Li at First Capital.
Meanwhile, MIE, which was aiming to tap the US market to fund the expansion of its oil output, has postponed its IPO in New York. The company was supposed to price its downsized deal yesterday morning (Hong Kong time) after extending the offering period by three days but the issuer and investors couldn't reach an agreement on price, sources said.
MIE had already reduced the price range of its offering by about 40% to between $7 and $8 per American depositary share (ADS) from between $11.50 and $13.50 originally. The deal size was also reduced to 12 million ADS from 18 million, as the existing shareholders who had been planning to sell part of their holdings in the IPO decided to withdraw their shares.
At the new price range the company would have been able to raise up to $96 million, compared with an original deal size of up to $243 million. Bank of America Merrill Lynch and J.P. Morgan were the joint bookrunners.
