With less than six weeks to go before the Christmas holidays kick in, Hong Kong is experiencing a wave of initial public offerings as issuers are rushing to get their deals to market before the end of the year.
It is a familiar pattern and the recent pickup in the deal flow is no real surprise, but with the Hong Kong IPO volume being so thin in the first eight months this year it does seem particularly busy right now.
Companies that are planning a full marketing schedule with two weeks of investor education and close to two weeks of institutional bookbuilding will have to start the process next week at the very latest to be able to list before the Christmas week. Companies on a more accelerated timetable have a little more time, although it obviously doesn’t hurt to have a bit of margin – especially since some investors choose to close their books a couple of weeks before the holiday season.
Many fund managers are also reluctant to invest in untested names just before the end of the year as there is always a risk that they could trade down immediately after the debut, forcing investors to book a loss on their holdings at the end of the year.
When Beijing-based Phoenix Healthcare Group opens its order books to institutional investors on Thursday it will be competing for their attention with two other companies of size whose management is already on the road drumming up orders and four more that are at the pre-marketing stage. Meanwhile, bankers are looking to start investor education for at least a handful of listing candidates next week or the week after.
Aside from China Cinda Asset Management, which is expected to raise at least $2 billion, the largest among the deals currently being pre-marketed is Qinhuangdao Port, which is hoping to raise between $500 million and $700 million, according to sources. Bankers started pre-marketing for the coal-focused ports operator last Friday and the aim is to launch a full roadshow on November 25 – the same day as Cinda.
Most of the other deals are smaller, although talk in the market suggests that China Everbright Bank may be trying to return to the market before the end of the year. The expectation is that the bank, which is already listed in Shanghai and has tried to go public in Hong Kong twice in the past two years, will look to raise about $2 billion so if it does launch it will add substantially to the supply in the final few weeks of the year.
However, Everbright Bank’s Shanghai-listed shares are currently trading at about 0.87 times its book value for the most recent quarter, according to Bloomberg data. And since state-owned Chinese banks are not allowed to issue new shares at below their latest audited historical book value, this suggests that Everbright Bank may be forced to offer H-shares at a significant premium to its Shanghai-listed A-shares.
It is unclear who would be buying the deal if that was to be the case, particularly since people familiar with the bank say it does not provide much differentiation versus the other Chinese banks that are listed in Hong Kong already. Hence it is probably safe to assume that, similar to the recent IPOs of Bank of Chongqing and Huishang Bank, Everbright Bank will have to secure a large number of China-based cornerstones and anchor investors to get a deal across the line.
Currently in the market
YuanShengTai Dairy Farm
Better known as YST Dairy, the company focuses on the production of raw milk and, according to a preliminary listing prospectus, it owns and operates two mega-scale farms and two large-scale farms. Three-quarters of the IPO proceeds will go towards the construction of five new farms.
The company launched the roadshow on Monday this week and will close the order books on November 19. Credit Suisse and Macquarie are joint bookrunners.
It is seeking to raise between HK$3.04 billion and HK$3.88 billion ($392 million and $501 million) from the sale of 31.25% of the company. It is offering approximately 1.22 billion shares, of which 80% are new, plus a 15% greenshoe.
The shares are marketed at a price between HK$2.49 and HK$3.18 apiece, which translates into a 2014 price-to-earnings multiple of 15.7 to 20 times. This puts it at a discount to China Modern Dairy, which as of Monday this week was trading at 22 times its projected earnings for the fiscal year to June 2014. Like YST Dairy, China Modern is focused on the upstream part of the market.
China Huishan Dairy, which is more integrated, priced its September IPO at 17 times its forecast earnings for the fiscal year to March 2014, but its share price has gained 14.2% since the debut, pushing up the valuation somewhat.
Industry leader China Mengniu Dairy, which is one of YST Dairy’s top-five customers, has agreed to buy $60 million worth of shares in the IPO as a cornerstone investor.
Dongpeng Holdings
Dongpeng is the largest manufacturer of ceramic tiles in China based on sales value and also has a market-leading 9.8% share of the high-end tile segment of the market, according to its preliminary prospectus. Ceramic tiles is the preferred choice of material for interior decoration in China, the prospectus says, making the company a direct play on the urbanisation theme.
Private equity firm Sequoia is a pre-IPO investor and will hold about 6.8% of the company at the time of listing.
Dongpeng is aiming to raise between HK$917.8 million and HK$1.13 billion ($118 million and $146 million) through the sale of 20% of its share capital. It is offering 249.4 million new shares, at a price between HK$3.68 and HK$4.55 apiece. There is also a 15% greenshoe.
The price range values the company at a 2014 P/E multiple of 8.5 to 10.5 times post-shoe, which according to a source compares with a global industry average of about 14 to 15 times.
The company started to take orders from institutional investors on Tuesday this week and is scheduled to close books and fix the price at the end of New York trading on November 21. The trading debut is scheduled for November 29.
Goldman Sachs is the sole global coordinator as well as a joint bookrunner together with BOC International and Deutsche Bank.
Phoenix Healthcare Group
Phoenix owns and operates two private-sector hospitals in Beijing and manages a few more. It also runs healthcare clinics. A number of investors have indicated that they will participate in the deal and as of Wednesday there were ongoing discussions with an international investor about coming in as a cornerstone, sources said.
The interest in the deal is expected to be supported by a scarcity of new healthcare issues in Asia. The sector is also hot this year and, according to Dealogic data, there has been 47 IPOs in the healthcare sector in the US since January, raising a combined $9.2 billion – the highest year-to-date volume on record. Another five deals, totalling about $445 million, are expected to price this week.
Phoenix is looking to raise between HK$1.18 billion and HK$1.48 billion ($152 million and $191 million) before any potential exercise of the 15% greenshoe. It is offering approximately 200.9 million new shares, or 25% of the company.
It will market the shares at a price between HK$5.88 and HK$7.38, which equals a 2014 P/E multiple of 20.3 to 25 times.
The management roadshow and institutional bookbuilding will kick off today and the order books are scheduled to close on the same day as Dongpeng (November 21). Goldman Sachs and Deutsche Bank are joint global coordinators with Bocom International joining them as a bookrunner.
Pre-marketing
In addition to Cinda and Qinhuangdao Port, Bank of America Merrill Lynch and Credit Suisse are currently also doing pre-marketing for Hengshi Mining Investments, a Chinese coal miner that is aiming to raise about $100 million to $150 million, according to sources. The roadshow is expected to start on Monday next week (November 18).
Bankers also starting pre-marketing on Thursday (November 14) for AD Capital-sponsored Spring Real Estate Investment Trust, which could be the second Reit to list in Hong Kong this year after hotel-focused New Century Reit that started trading in June.
Spring Reit owns two office towers in Beijing and is expected to raise $200 million to $300 million by selling up to 49% of the trust to public investors. The investor education will continue until the end of next week. It is being brought to market by Credit Suisse and Mizuho.
The Qinhuangdao Port IPO is being arranged by CICC, Citi, HSBC, JP Morgan and UBS with the first three acting as joint global coordinators.
