Sany Heavy Industry, a Chinese machinery maker, braved wobbly markets to kick off roadshows yesterday for a planned HK$25.9 billion ($3.3 billion) initial public offering in Hong Kong.
The share sale faces less competition than expected after smaller domestic rival XCMG Construction Machinery postponed its roadshow by a week. It had planned to launch the bookbuilding for an IPO that could be worth up to $2 billion head-to-head with Sany Heavy yesterday, but a lukewarm response from investors prompted it to push the date back.
However, Sany Heavy, which is already listed in Shanghai, still has to compete for investor interest with Citic Securities, China’s biggest brokerage, which is in the market for a $1.9 billion offering. The deal has received strong cornerstone support, with six cornerstone investors agreeing to buy around half the total offering.
The overall market doesn’t look favourable. The Hang Seng Index has lost 19% and Shanghai Composite Index has fallen 14% so far this year. Shanghai-listed shares in Sany Heavy have fallen around 30% year-to-date.
Sany Heavy makes engineering machinery for construction use and is the Shanghai-listed arm of Sany Group. The issuer’s pitch is hitched to China’s industrial growth — industrial profits at bigger companies jumped around 20% during the first seven months of this year and, as a result, investment by big industrial firms was up by 32% year-on-year during that period, compared with 25% during the same period last year, according to CLSA. Power production in China, an important indicator of industrial activities, was up by 12% in July.
The company is offering 1.34 billion new shares at HK$16.13 to HK$19.38 each, which suggests it could raise between HK$21.6 billion and HK$25.9 billion. At the low end, the price represents a 12.1% discount to its closing price in Shanghai, which was quoted at Rmb15, and the top end represents a 5.6% premium.
That values Sany Heavy at around 12.2 times to 14.7 times its forecast 2011 earnings, or 9.1 times to 10.9 times 2012 earnings.
By comparison, Hong Kong-listed shares in Changsha Zoomlion Heavy Industry Science and Technology, a close competitor of Sany Heavy, are currently trading at a 2011 P/E multiple of 7.9 times and a 2012 multiple of 6.3 times, according to Bloomberg.
About 95% of the offering will go to international investors, while the remainder is earmarked for the Hong Kong public offering. The allocation is subject to a standard clawback trigger. The deal comes with a standard 15% greenshoe option that, if fully exercised, will allow the company to raise up to $3.8 billion. There are no cornerstone investors in the deal.
Sany Heavy plans to use 47.6% of the proceeds to build new manufacturing facilities and expand its existing production lines for excavators and crawler cranes. It will also use 17.3% to expand production lines to enhance its in-house manufacturing capability of certain key components.
The share price will be fixed on September 26 and the company will start trading on October 3 under the ticker 6031. BoA Merrill Lynch, Citi, Citic Securities and ICBC International are joint bookrunners and joint lead managers of the deal.
XCMG, which makes bulldozers, excavators and heavy trucks in China, filed its listing application around the same time as Sany Heavy and its transaction is managed by BNP Paribas, CICC, Credit Suisse, HSBC, Macquarie and Morgan Stanley.
Sany Heavy, which is based in central China’s Hunan province, posted a net profit of Rmb5.9 billion ($899 million) for the first half of 2011, which was a 106% jump year-on-year, according to a filing to the Shanghai stock exchange.
The company said the significant increase in revenue during the first half was due to higher domestic demand for construction machinery from the building of affordable homes.
There are currently 23 industrial machinery companies listed in Hong Kong. The biggest debut to date came from Shanghai Electric, which raised $648 million from its IPO in 2005, according to data from Dealogic.
Meanwhile, Hongguo International, a Chinese shoemaker and retailer, raised HK$1.15 billion after selling 500 million shares at HK$2.30 each, the lower end of an indicated range that stretched up to HK$3.24. The final price values Hongguo at 10 times the company’s 2012 forecast earnings.
In a clear indication that investors remain cautious, the 10% retail tranche was significantly undersubscribed, which meant institutional investors ended up with well over 90% of the deal.
Shares in Hongguo will list on the Hong Kong stock exchange on September 23. Citi and DBS are managing the deal.
