The offer, which was due to close today, would have been Hong KongÆs second largest IPO this year after Bank of China. With the drop in share prices for other Chinese real estate companies, however, the deal struggled as it was getting less and less attractive - on a relative valuation basis - the longer the bookbuilding proceeded.
Deutsche Bank, HSBC and JPMorgan were joint bookrunners for the offering.
ôIn light of deteriorating market conditions, we have decided to postpone our global offering. We believe that to proceed at this time would not be in the best interest of the company,ö Shui OnÆs Chairman and CEO Vincent Lo said in a statement late last night.
And the developer wasnÆt the only casualty with TaiwanÆs ProMOS Technologies having pulled a follow-on GDR offering earlier in the day after completing the entire roadshow and bookbuilding. People familiar with that deal say the DRAM manufacturer felt it couldnÆt achieve its fundraising targets even though the book was said to have been fully covered.
While the market decline had already prompted a number of issuers to delay the launch of planned primary market offerings, Shui On and ProMOS were the first two victims among companies that initially decided to brave the current tricky conditions and push ahead, suggesting investors may be getting more cautious.
Since Shui On launched the roadshow for its offering on June 5, the Hang Seng Index has dropped 4.2% amid fears that escalating inflation in the US would result in further interest rate hikes which could strangle economic growth both domestically and globally.
Mainland developers listed in Hong Kong have fared even worse with China Overseas Land down 14%, Guangzhou R&F Properties off 19% and Agile Properties having given up 22%. The three companies have plunged between 29% and 36% since the market collapse began on May 9.
ôWith the real estate sector off as aggressively as it is, it doesnÆt make sense to go ahead even if this is arguably one of the best property companies in China,ö one observer says of Shui OnÆs decision to postpone the deal.
People familiar with the deal say it had been fully covered within the price range and that the amount of orders that had been pulled or downsized during the bookbuilding period hadnÆt been significant. While that suggests the company could have gone ahead and raised its money, the likelihood of a weak aftermarket performance likely played a role in the decision not to proceed, they say.
According to one source, Shui On will be back once markets stabilise. However, having failed to complete the transaction before the end of June, the company will now have to update its financials and a return before September would be unlikely, they say.
In his statement, Chairman Lo said the company was ôlooking forward to relaunching the offering at the earliest suitable opportunityö but didnÆt specify when. He also stressed that the company has sufficient resources for its immediate needs and the postponement wonÆt have any impact on its development.
ôAll projects will proceed as planned,ö he said.
The company has built a name for itself in recent years primarily through its landmark Xintiandi development in Shanghai and is currently working on six large-scale urban projects that aims to re-develop and modernise run-down areas in four cities.
It was aiming to sell 25% of the company, split on 70% new shares and 30% secondary shares pre-greenshoe. The price range was set at HK$5.60 to HK$7.55, which gave a minimum deal value of HK$5.90 billion ($760 million). The price range valued Shui On at about 13.7 to 18 times its projected forward earnings or at a discount to net asset value of roughly 13-30% based on consensus projections, according to sources.
ProMOSÆ deal, which was jointly arranged by ABN AMRO Rothschild and JPMorgan, was also said to have been fully covered. However, the price had to be fixed at a discount of 7%-10% to the underlying stock in Taipei which had come off substantially since the launch of the deal, meaning the absolute price level that could have been achieved was well below where it was at launch.
ôDue to current capital market conditions, ProMOS decided to postpone its GDR offering and will continue to assess the capital market situation for a re-launch at a later date,ö corporate spokesman Ben Tseng said in a brief statement.
The company had been aiming to raise about $325 million to pay for new machinery and equipment that was to be used in connection with a capacity expansion. It was offering 87.5 million GDRs backed by 875 million new shares, which corresponded to 12.9% of its enlarged share capital.
The deal which was launched on June 8 at a time when the underlying shares were trading at NT$11.95 after falling 3.6% on the previous day. By the time the order books closed in the early hours of yesterday morning, the share price had fallen 16% since June 6 to NT$10.45.
According to the indicative guidance, ProMOSÆ GDRs would have had to be priced another 7-10% lower still, which in total would have significantly reduced the amount of money the company could raise, market watchers say.
The postponement means the memory chip maker will now likely see bigger Korean rival Hynix beat it to market with an expected $2 billion offer. That deal, which may also include a sell-down by existing shareholders, is expected to come in early July and is likely to soak up much of the investor appetite for DRAM makers.
¬ Haymarket Media Limited. All rights reserved.
