VPower Group International launched an initial public offering in Hong Kong on Thursday; one of the first companies to access the Asian equity capital markets following America’s surprise US presidential election result.
Syndicate bankers said the company’s management had already decided to launch the deal ahead of the result, indicating their confidence it could sail through even in the case of extreme volatility, which did not materialise anyway.
Nevertheless, the termsheet shows that VPower’s offering has been scaled back.
Indicative terms reveal the issuer is pitching a 550 million share deal at HK$2.78 to HK$3.47 per share. This will generate proceeds of HK$7.1 billion to HK$8.9 billion ($201 million to $250 million) on a pre-shoe basis; nearly half the size of a $400 million deal it pitched to investors during pre-deal investor education.
VPower will be selling shares equivalent to 21.88% of its enlarged share capital, which is about 12% less than the originally intended 25% freefloat. The deal comes with a standard 15% greenshoe option.
In any case, the issuer should be more relieved after global stock markets rebounded following a sharp plunge on Wednesday after Donald Trump’s surprise victory. Hong Kong’s Heng Seng Index recovered 1.89%, or 424 points, after retreating nearly 1,000 points midday Wednesday when the election result was announced in the US.
Profile
Hong Kong-headquartered VPower specializes in manufacturing distributed power generators, commonly known as gensets, which provide an alternative electricity solution from centralized power plants.
A genset is a small-scale electrical generator located close to the end-user. It is regarded as an "off-grid" power source, and is commonly used in data centres, industrial estates, hospitals, hotels and airports that rely upon a steady source of power.
VPower mainly develops and sells gas-fired and diesel-fired gensets. It also engages in genset installation projects. The two businesses accounted for 80% and 20% of its 2015 revenue, respectively.
The company counts state-owned train maker CRRC as its key supplier of power engines and spare parts. It has also entered into strategic partnerships with German engine producer MTU Friedrichshafen GmbH and Norway’s Bergen Marine.
For the power installation business, VPower mainly targets government utilities in emerging countries, which require interim and imminent power before the development of large-scale infrastructure projects. Last year, the company received the entirety of its revenues from power projects in Bangladesh, Indonesia and Myanmar. It has also entered into contracts to build power stations in Ghana, Nigeria and Saudi Arabia.
Comps
VPower’s IPO is being pitched at 10.2 to 12.7 times 2017 earnings on a syndicate consensus basis, according to a source familiar with the situation.
The fact that VPower engages in a niche business means there are hardly any direct comparables in Asia. Syndicate banks are taking Scotland-based and London-listed Aggreko as the main comp due to similar product portfolios.
Aggreko makes temporary power generation and temperature control equipment. The $2.6 billion-market cap company currently trades at 11.9 times earnings on a rolling twelve-month basis and 16 times earnings as of the end of June, which is largely in line with VPower’s projected market valuation.
Bankers said VPower is being pitched as a high-growth equity story because of the high renewal rate for its power installation projects. Contracts are typically renewed every two to five years, thereby allowing VPower to increase its contractual fees.
VPower said it is able to renew contracts frequently because of chronic power shortages in developing countries, as well as continuous demand for dispatchable electricity to supplement renewable power generation.
The deal is supported by one single cornerstone investor, Citic Pacific. It has agreed to subscribe to 204.8 million shares at the offer price. That cornerstone investment accounts for about 37% of the entire deal on a pre-shoe basis and 32% post-shoe.
VPower’s management roadshow and bookbuilding will run through November 17 and the shares are set to begin trading on November 24.
BOC International and Citigroup are joint sponsors of the VPower IPO.
