China Hongqiao Group, the country’s leading aluminum producer raised HKD 6.37 billion in the largest Hong Kong IPO by a metal and mining player during the past year.
It priced the shares at HKD 7.20, the bottom end of an indicated range that went up to HKD 8.30. Although the company pocketed less than half of the USD 2.2 billion it originally looked for, bankers are pleased the deal managed to make it through the choppy market.
One banker said that given the current tough market conditions our key satisfaction is getting the deal done. It’s nice to see that investors have the courage and conviction and that the company management can convince the investors so strongly.”
Earthquake stricken markets have put investors on edge and some issuers have chosen to hold off on planned initial public offerings. Australia-listed Galaxy Resources, a lithium miner, postponed its USD 200 million listing in Hong Kong and said in a statement early last week that it was a prudent decision in light of serious international events and the related market volatility.
Later Hilong Holding, a leading provider of oilfield equipment and services in China, postponed its planned USD 190 million Hong Kong IPO, blaming the weak market conditions. Hongqiao’s offering attracted a good mix of investors from Asia, Europe and the US and the books were covered on the first day of the roadshow.
The company decided to fix the price at the bottom end of guidance, at HKD 7.20 to help the deal’s performance in an uncertain secondary market the one week gap between the day of pricing and the stock’s trading debut which falls on March 24 makes it difficult to predict where the market is heading, so Hongqiao and its bankers played safe by pricing conservatively.
Based on the company’s 2011 forecast earnings, the final price translates into a price to earnings ratio of 6.4 times. Hongqiao sold 885 million new shares in total, with 90% going to international investors and the remaining 10% earmarked for the Hong Kong public offering.
The company won USD 350 million in cornerstone commitments from four investors. Developers Cheung Kong and Chow Tai Fook which is controlled by Hong Kong tycoon Cheng Yu tung, each agreed to invest USD 100 million. Mr Thomas Lau MD of shopping mall operator Lifestyle International Holdings and his brother Mr Joseph Lau chairman of Chinese Estates, each agreed to buy USD 75 million worth of shares.
According to bankers, based in northeast China’s Shandong province, Hongqiao enjoys a bigger profit margin than its industrial peers by charging customers a premium for its value added products. The company produces molten aluminum alloys, so when the products reach clients, they don’t have to spend time and money to re-melt the alloys, though that part of the business was a bit difficult for investors to understand.
(Sourced from www.financeasia.com)
