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Nexteer Automotive, a Michigan-based steering and driveline supplier, has launched the management roadshow and institutional bookbuilding for its Hong Kong initial public offering, with the aim of raising between HK$1.83 billion and HK$2.52 billion ($236 million to $325 million).
The company was part of Delphi and General Motors, before GM sold it to China-based Pacific Century Motors in 2010. Chinese state-owned parts manufacturer AVIC Automobile Industry Holding then bought a 51% stake in Pacific Century Motors. The company has chosen to list in Hong Kong because it wants to expand its business in China, according to a source.
The deal, which launched on Friday last week, is braving a tough environment for IPOs right now. Last week, Hopewell Hong Kong Properties pulled its offering of at least $670 million after the market and its closest comparables fell significantly during the bookbuilding. It was the second company to call off a Hong Kong IPO during the past few weeks after auto parts maker Mando China, which was seeking to raise at least $213 million.
This appears to be reflected in the size of the Nexteer IPO. At the start of pre-marketing earlier this month, the deal size was expected to be somewhere around $400 million to $500 million.
As volatility in global markets accelerates on worries that the US might taper off its stimulus programme earlier than expected, the Hang Seng Index has lost nearly 11% since its most recent peak in late May. It finished 0.4% higher on Friday, but fell 2.8% during the course of the week.
The post-IPO performance of some recently listed companies has been discouraging as well. After plunging on its first day of trading on Thursday, China Harmony Auto extended losses on Friday to close at HK$4.83 ― 20.6% below its IPO price of HK$6.08. The luxury car dealer raised $215 million from its offering.
Chinese property developer Wuzhou International, which debuted on the same day as China Harmony, has fared better, however. The stock dropped 3.9% on Friday to finish at HK$1.24, but that is still 1.6% above the IPO price of HK$1.22. The company raised $179 million from its offering.
Nexteer Automotive
Nexteer is selling 720 million shares, which represents 30% of its enlarged share capital, at a price between HK$2.54 and HK$3.50 each. The price range values the company at a 2014 pre-greenshoe price-to-earnings ratio of 6.1 times to 8.5 times, the source says.
One-tenth of the deal is set aside for the Hong Kong retail offering, while the remaining 90% is targeted at institutional investors. There is a 15% greenshoe option that could increase the deal size to as much as $373 million. All the shares are new.
According to the current timetable, Nexteer will keep the order books open until June 25, with the pricing expected the following day. The listing is slated for July 3.
Investors will likely compare Nexteer to other auto parts-related companies, such as Hong Kong-listed Zhejiang Shibao, Japan-listed JTEKT and US-listed TRW Automotive. According to Bloomberg data, Zhejiang Shibao is trading at a 2014 P/E multiple of around three times, while JTEKT is quoted at about 16.7 times and US-listed TRW at about 8.7 times.
Nexteer plans to use a majority of the proceeds for capital expenditure on new product programmes that have already been secured or are expected to be secured, and to expand its manufacturing capacity, according to a term sheet. The rest will be used for research and development, as well as working capital.
The company, which is one of the world’s leading steering and driveline suppliers, booked revenues of $2.2 billion last year. That made it the fifth-biggest steering supplier in the world in terms of revenue, with a global market share of about 6%, and the biggest steering supplier in the US, with about 31% of the market, according to the company’s draft prospectus.
In 2012, Nexteer derived 71% of its revenue from North America. China accounted for 8%, but offers great potential, especially after Nexteer became a subsidiary of AVIC, according to a syndicate research report. Mainly due to the rapid growth in the electric power steering segment and the China market, the company’s earnings are projected to grow at 43% a year from 2012 to 2015, the report says.
According to the draft prospectus, one of its key strategies for growth is to increase its market share in China and other emerging markets by expanding its product portfolio to offer products specifically tailored to these emerging markets.
Its main products are steering systems and components, including electric power steering, hydraulic power steering and steering columns, as well as driveline systems and components such as halfshafts, intermediate drive shafts and propeller shaft joints. The products are used on a broad range of vehicles from small passenger cars to full-size trucks.
Nexteer currently serves more than 50 customers, the biggest of which is GM. Its other customers include Ford, Fiat, Chrysler and PSA Peugeot Citroen, and local original equipment manufacturers (OEMs) in regional markets such as China and India. It has supplied its products to GM for more than 100 years.
The company has 20 manufacturing plants, 10 customer service centres and five regional engineering centres in North and South America, Europe and Asia.
BOC International and J.P. Morgan are joint global coordinators and bookrunners for the IPO.
Also in Hong Kong, Macau Legend Development, a hotel and casino operator, is currently on the road for an IPO of $607 million to $787 million. The order books will remain open until Thursday. The day before that, on Wednesday, Freetech Road Recycling Technology, a China-based asphalt pavement maintenance services company, is scheduled to wrap up its offering of up to $111.2 million.
