Market sources said the premarketing had revealed solid demand for the ports operator and the price range could have been set higher. However, the state-owned company was believed to have wanted to keep the valuation down to ensure a strong performance in the secondary market.
The interest in the stock is likely to be underpinned by Hutchison Whampoa, which agreed to buy 51 million shares in the IPO, sources say. The investment, which represents 8.8% of the share offer, will give Hutchison 3% stake in the company at the time of listing.
One indication that joint bookrunners ABN AMRO Rothschild and CLSA are confident about the early level of demand is the fact that the formal roadshow will be shorter than normal and that they have made a decision not to offer the shares to US-based investors.
The roadshow will kick off today (May 8) with two days of marketing in Singapore followed by three days in Hong Kong, before moving on to London and Scotland next week. The Hong Kong retail offering, which typically starts a full week after the institutional roadshow, will open on Friday (May 12).
The pricing is expected shortly after the offer closes on May 17 and the shares are scheduled to start trading a week later.
At the new offer price range, Tianjin Port will be aiming to raise between HK$895.9 million and HK$1.09 billion ($115.5 million to $140 million) from the IPO. There is a 15% greenshoe that could raise the total proceeds to $161 million.
Parent company Tianjin Development two weeks ago announced an indicative range for the offering of HK$1.50 to HK$1.83 per share as a guidance for its existing shareholders when they vote to approve the spin-off at a special shareholders meeting today. However, a source familiar with the IPO says that the range could have changed depending on the response during premarketing.
Tianjin Port will sell 578 million new shares, or 34% of its enlarged share capital, of which 61.2 million shares, or 10.6% of the total, have been earmarked for shareholders of Tianjin Development. Another 10% has been set aside for retail investors, and with Hutchison taking 8.8% there will be only about 70.6% left for institutional investors before any potential clawbacks.
And if the demand at recent Hong Kong IPOs is to be taken as a guidance, a full clawback seems almost certain which means retail investors will walk away with 50% of the deal.
The new price range will value the company at a fully diluted 2006 PE multiple of 13.9 to 16.9 times. That is well below the forward PE ratio for Dalian Port which has jumped to the mid-20s after its share price has rallied 71% since the listing on April 28.
Based on syndicate forecasts, Tianjin PortÆs 2006 net profit is expected to increase to about HK$190 million ($24.5 million). In 2005, the company posted a pre-tax profit of about HK$147.3 million, up 90% from the previous year, according to figures provided by its parent company.
Like Dalian Port, Tianjin Port is located in the Bohai Rim region in the Northeast of China which has been singled out by the government as a key focus for economic and social development in the next five years.
The company, which is the fourth largest port operator in China, derives more than 80% of its revenues from its container terminals, which have a combined capacity of 4.8 million twenty-foot equivalent units (TEU) per year. It also has a non-containerised cargo handling capacity of 240 million tonnes per year, which deals will all types of bulk cargo except for oil. Dalian Port, by comparison, has a large oil handling business, which the underwriters used as a key selling argument for its IPO.
Like its parent company, Tianjin Port will list as a red-chip.
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