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New China Life Insurance yesterday launched the international roadshow for an initial public offering of between $1.87 billion and $2.28 billion, according to a term sheet seen by FinanceAsia. The deal size is well below the $3 billion to $4 billion that the company was initially hoping to raise, but at the top end of the range it is in line with the size sources indicated last week.
The Chinese insurer is seeking a dual-listing in Hong Kong and Shanghai, with the Hong Kong portion accounting for about 70% of the combined offering.
New China Life is offering 358.42 million H-shares at a price ranging from HK$28.20 to HK$34.33, which will allow it to raise between HK$10.11 billion and HK$12.3 billion ($1.3 billion to $1.58 billion) from the Hong Kong tranche. There is also a 15% greenshoe option that could boost the proceeds from the H-share tranche to $1.8 billion.
The company has secured four cornerstone investors that have committed to buy $780 million worth of H-shares, or 60% of the Hong Kong portion of the deal at the bottom of the range, a source said. The investors are DE Shaw & Co, Great Eastern Holdings, Khazanah Nasional and MBK Partners.
The insurer has set aside 5% of the Hong Kong portion for retail investors and will offer the remaining 95% to institutional investors.
The A-share portion comprises 158.54 million shares at a price ranging from Rmb23 to Rmb28, which is equal to the H-share price after adjusting for the exchange rate. The combined A- and H-share offering will account for 17% of the issued share capital pre-shoe and 18% post-shoe, the source said. There is no greenshoe on the A-share portion of the deal.
As volatile market conditions keep investors on their toes, the fact that New China Life is backed by a list of big-name global investors should make other potential buyers more comfortable to commit money to the stock. Zurich Financial Services invested in the insurer alongside three other international companies in 2001 and currently owns 15%.
New China Life is the third largest life insurance company in China in terms of premiums after China Life Insurance and Ping An Insurance Group.
The price range values New China Life at 1.26 to 1.46 times its 2011 estimated embedded value, based on the joint bookrunner consensus. At the bottom of the price range, this pitches the company at a 10% discount to the Hong Kong-listed shares of China Life Insurance, China Pacific Insurance (CPIC) and Ping An Insurance, which are trading at 1.5 times, 1.4 times and 1.45 times their embedded value, respectively, the source said.
Embedded value is an estimate of future profits from existing policies plus adjusted net asset value.
Although share prices of listed Chinese insurers have been hit by the tough market conditions this year - insurers tend to invest a large part of their income in financial markets - New China Life expects to benefit from further growth in the country's insurance market.
While increasingly competitive, China's life insurance market is one of the fastest growing in the world. Between 2000 and 2010, gross premium income received by life insurance companies in China increased at a compound annual growth rate of 24.9%, according to China Insurance Regulatory Commission (CIRC) data cited by New China Life in a listing document published on the Hong Kong stock exchange website.
The insurer also noted that China is in the midst of a series of economic and demographic transformations, such as continuing healthcare reform and an aging population, and that will present significant growth opportunities.
The institutional bookbuilding will close on or around December 7, when the final price is expected to be set. The H-shares will start trading in Hong Kong on December 15, with the A-share debut in Shanghai scheduled for a day later on December 16.
CICC, Goldman Sachs and UBS are joint global coordinators and bookrunners for the H-share tranche, while Bank of America Merrill Lynch, Deutsche Bank and HSBC are joining them as bookrunners. J.P. Morgan, which was initially a bookrunner, has dropped out from the transaction and BNP Paribas' role has changed from bookrunner to joint lead manager.
According to a source, J.P. Morgan decided to give up its bookrunner position to focus on its role as a global coordinator of Haitong Securities' Hong Kong IPO, which is expected to start bookbuilding tomorrow. It is unclear why the US bank felt compelled to do so. Among the other banks working on New China Life, Deutsche Bank is also mandated as a global coordinator on Haitong Securities' IPO, while HSBC and UBS have bookrunner roles.
CICC and UBS are also arranging the A-share portion of New China Life's IPO.
Aside from New China Life, China Outfitters Holdings also kicked off an institutional roadshow yesterday for an IPO of HK$1.13 billion ($145 million). The company initially tried to raise up to $300 million form an IPO in June, but was forced to call off the attempt before pricing after failing to attract enough demand.
The designer of casual menswear is offering 691.56 million shares at a fixed price of HK$1.64 each. The base deal accounts for about 20% of the equity capital after the IPO and is comprised of 69.4% new shares and 30.6% existing shares. The deal size could increase to as much as $167 million if a 15% greenshoe is fully exercised. All the shares in the greenshoe are new.
The company has secured three cornerstone investors, Everbright Private Equity, KKR Apparel and the Sequoia Funds, which will invest a combined $110 million in the IPO. That will account for about 76% of the base deal.
The institutional bookbuilding and the Hong Kong public offering will both close on December 2. The trading debut is scheduled for December 9. BOC International, Daiwa, ICBCI, RBS and UBS are joint bookrunners.
China Outfitter's first attempt to list in June was arranged by UBS on a sole basis.
As the year-end nears, the Hong Kong market has seen a flurry of deals launch in recent weeks, including Chow Tai Fook Jewellery, BMW dealer Baoxin Auto and China Polymetallic Mining.
HKT Trust, which is the listing vehicle for PCCW's telecom business, started trading yesterday after raising $1.2 billion from a Hong Kong IPO. The trust ended its first day 0.4% above the IPO price, but underperformed a 1.2% rise in the benchmark Hang Seng Index.
