Wison Engineering Services, a Chinese engineering company, kicked off its roadshow yesterday for a Hong Kong initial public offering of between HK$1.67 billion and HK$2.12 billion ($216 million to $273 million).
Like other recent offerings, Wison has signed up cornerstone investors that are taking up a combined $50 million, or up to 23.1% of the deal. The three cornerstones are: Chow Tai Fook Nominee, the investment holding company controlled by Hong Kong tycoon Cheng Yu Tung, and Solar City Holdings, a real estate development and investment company, which have pledged $20 million each; and EA Asia Absolute Return Master Fund, which is investing $10 million.
Wison is the latest company to launch an offering in Hong Kong as the year-end approaches. While companies have faced a difficult environment for IPOs this year, PICC Group was able to raise $3.1 billion from Hong Kong’s biggest IPO this year just a couple of weeks ago. The stock gained almost 7% in its trading debut last Friday and yesterday finished 7.2% above the offer price of HK$3.48.
Wison focuses on the petrochemical industry and offers engineering, procurement and construction (EPC) services to clients for their petrochemical plants. It is also active in the coal chemical industry. It was the biggest private sector chemical EPC management service provider in China in terms of revenue in 2011, according to the listing prospectus.
The company is offering 600 million shares — 80% of which are primary shares — at a price between HK$2.79 and HK$3.53 each. The base deal size represents 15% of the company. There is also a 15% greenshoe option of an additional 90 million new shares, which could increase the deal size to as much as $314 million.
Of the base deal, 10% is earmarked for the Hong Kong public, while the remaining 90% is intended for international investors.
The company plans to use a majority of the IPO proceeds to pay for the construction of research and development centres in Shanghai and Beijing, and the rest for the R&D of proprietary technologies, expansion of engineering capability, and working capital and general corporate purposes, according to a term sheet.
The price range values Wison at a 2013 price-to-earnings ratio of between 7.5 times and 9.5 times, based on the bookrunners’ consensus, a source said. Listed companies in the same industry include Larsen & Toubro in India, Hyundai Engineering & Construction in Korea and East China Engineering Science and Technology in China.
For comparison, Larsen & Toubro is trading at a 2013 P/E multiple of 19.5 times, Hyundai Engineering & Construction is quoted at 12.8 times and East China Engineering Science and Technology at 16.7 times, according to Bloomberg data.
The Wison Group, which is headquartered in Shanghai, has 11 member companies that span four major business sectors: engineering services, offshore and marine, clean energy and emerging businesses (biopharmaceutical), according to the company’s website.
According to sources, investors like the company’s niche business and its industry connections. The China petrochemicals and oil refining industries are dominated by a small number of large state-owned oil companies, such as PetroChina, Sinopec and their subsidiaries, and Wison has had a business relationship with these two companies for about 10 years, according to the prospectus.
The company also noted that as it relies on the Chinese market, and its business is affected by the regulatory environment there, its operations could be affected by fluctuations in the supply and price of raw materials, parts and equipment and cost overruns.
The company booked Rmb589.7 million ($94 million) in net profit for 2011, down from Rmb636 million in 2010, but up from Rmb229.9 million in 2009, according to the prospectus.
The roadshow and the Hong Kong public offering both started yesterday and will continue until next Tuesday (December 18). The pricing is expected on the following day, with the listing scheduled for December 28.
Bocom International, Citi and Deutsche Bank are joint global coordinators for the deal. Citic Securities International and UBS join them as bookrunners.
Another company currently on the road is China Machinery Engineering Corporation. The state-owned international engineering contractor is expected to continue the roadshow until today for an offering of up to $500 million. A source has said that the deal had been covered at launch. The stock is scheduled to start trading in Hong Kong on December 21.
The global market remained volatile this year and IPO activity was subdued. The IPO volume in Asia ex-Japan stands at $35.4 billion year-to-date, down 53% from the $75.3 billion raised during the same period last year, according to Dealogic.
Meanwhile, follow-on deals that can be completed more quickly than IPOs have surged this year. The follow-on volumes in the region reached $110.3 billion year-to-date, a jump of 62.4% from $67.9 billion raised during the same period in 2011, the data show.
That means follow-on deals so far this year account for 71% of the total ECM volume in the region, compared to about 42% at this point last year, according to the data.
Share sales
There have been a several share sales this week as well. On Wednesday night, Hong Kong-listed CLP Holdings raised HK$7.61 billion ($982 million) from the second largest primary share placement by a Hong Kong-based company this year.
On the same night, Cayman President was in the market to sell down its holding in Uni-President China Holding, raising HK$982.8 billion ($127 million), after fixing the price near the bottom of the indicative range.
Cayman President offered 108 million shares at HK$9.1 each, which represents a 4.3% discount to Wednesday’s close of HK$9.51. The deal was marketed for a price range between HK$9 and HK$9.25, which translated into a discount of between 2.7% and 5.4% and could have raised as much as $129 million.
After the transaction, Cayman President’s stake in the company is reduced to about 70.49%, from the previous 73.49%, Uni-President China said in a statement yesterday. The selling shareholder is subject to a 90-day lock-up.
The food and beverage company started operating in China in 1992, and it has become one of the leading beverage and instant noodle manufacturers in the country, according to the company’s website. Its principal beverage products are juice drinks and ready-to-drink teas, it says.
After the block sale, Uni-President China’s stock fell 5.3% yesterday to end at HK$9.01. The Hang Seng Index fell 0.3% yesterday, but is up nearly 22% year-to-date.
Bank of America Merrill Lynch and Credit Suisse were joint bookrunners for the deal.
