If there was any doubt that the equity markets would spring back to life after the summer holidays they were firmly put to rest yesterday when no fewer than six companies started investor education for initial public offerings in Hong Kong. Add to that the pre-marketing of a re-IPO in the Philippines, two imminent IPOs in Korea, and a fully marketed follow-on by Malaysian budget airline Air Asia, plus the launch of pre-marketing for at least another four deals next week and a few more the week after that, it seems clear that the quiet days when ECM bankers were trying to justify their existence are well and truly over -- for now.
Of the deals that started marketing yesterday, the Hong Kong IPOs alone are seeking to raise at least $4.2 billion, which compares with a total of $3.6 billion raised from Hong Kong IPOs year-to-date, according to Dealogic. The other deals mentioned above are looking to tap investors for another $1.5 billion.
With so many deals in the immediate pipeline, there is of course a risk that some of them will get crowded out, but the deals on offer are different from one another and so far there isn't even a doubling up of sectors. That said, in Hong Kong some of the larger deals may swallow up a lot of the available margin capacity, making it difficult for retail investors to borrow for the smaller IPOs on offer.
Still, bankers are optimistic that the pent-up demand for equities will be sufficient to cover most of the key deals set to launch this month. One ECM banker notes that with the secondary markets still very volatile and with plenty of observers suggesting that Asian markets are at the very least fully valued, the discounts offered by new listings are attractive.
"The only way to get meaningful returns is to play these IPOs," he argued.
On the other hand, one fund manager said that with the possibility of the market dropping from current levels, he might prefer to wait and pick up shares in some of these companies at a lower price later on. That way he will also have time to look into the offerings in more detail, while right now, he says, there are so many that it is hard to take an in-depth look at all of them.
Not surprisingly, the deals that are attracting the most attention so far are the two largest -- Metallurgical Corporation of China (MCC) and Sinopharm -- plus perhaps the slightly smaller offering by South China City, which has evoked some curiosity with its hybrid exposure to commercial property and the trading of industrial goods.
MCC is a dual A- and H-share listing and at a combined size of more than $4 billion it is by far the largest among the deals currently in the market. According to sources, the Hong Kong H-share portion will account for 45% of the total, or approximately $1.5 billion to $2 billion, while the 55% A-share tranche may raise slightly more than that.
As with the other dual listings, the H-share tranche must be priced above the A-share tranche, which means that the valuation will be uncertain until the price range for the A-share tranche is set next weekend. The Hong Kong portion of the deal will start bookbuilding next Monday (September 7) and the listing is expected by the 24th of this month.
MCC is the largest engineering and construction (E&C) company in the world, but is also involved in manufacturing, resources, and property development -- areas that are expected to help drive growth. Syndicate analysts are projecting bottom-line growth of at least 30% in each of the coming three years.
The company has been granted a waiver that will allow it to set aside only 5% of the deal to retail investors initially and will keep the maximum retail allocation, after a potential clawback, at 20%.
The H-share portion is arranged by China International Capital Corp, Citi, Citic Securities and Morgan Stanley, while Citic Securities is leading the A-share offering.
Meanwhile, Sinopharm is going out aggressively to ensure its offering of about $1 billion won't be overshadowed by MCC's larger deal. Not only will it kick off its roadshow this Friday, which is a day earlier than MCC, but it has already signed up nine cornerstone investors, which will subscribe to a combined $195 million worth of shares. This should help give some positive momentum to the bookbuilding early on and give retail investors an extra incentive to line up for shares.
According to sources, the cornerstones are: China Life, Bank of China Group Investments, China Construction Bank International, the Government of Singapore Investment Company (GIC), Martin Currie, Och Ziff, Value Partners, David Li and a company called China Cheng Tong.
Sinopharm is the largest distributor of pharmaceutical products in China with a market share of about 11% - more than twice of the number two player. It is also the only truly nation-wide one. The selling arguments include a combination of scale, high growth, increased healthcare the expansion of healthcare spending in China. The industry is also expected to consolidate along the lines of what has already been happening in Europe and the US. And except from one much smaller player, there are no Chinese pharmaceutical distributors listed in Hong Kong, making Sinopharm something of a novelty.
Syndicate analysts expect net profit growth in the 40% range in the next few years.
Sinopharm too has received a waiver to limit the retail portion of the deal, although not to the same extent as MCC. The initial retail tranche will still be 10%, but a full clawback will only increase the allocation to 35%, as opposed to the normal 50%.
The company is being brought to market by CICC, Morgan Stanley and UBS and is scheduled to start trading on September 23 - again, one day ahead of MCC's H-share debut.
The other companies to start investor education this week are:
China South City: a $400 million to $500 million Hong Kong IPO led by BOC International and Bank of America Merrill Lynch. The company is the developer and operator of a large-scale logistics trade centre in Shenzhen where suppliers of industrial goods can meet with potential customers. It is also about to construct two new centres in Nanning and Nanchang and have signed an MOU for a potential fourth project in Xi'an. The trade centres include supporting functions like warehouses, commercial property and residential housing.
China Resources Cement: A $500 million plus Hong Kong offering led by Credit Suisse and Morgan Stanley. The company is owned by the same parent as Hong Kong-listed China Resources Enterprise, China Resources Land and China Resources Power and is the largest cement producer in southern China.
Peak Sports: A $200 million to $250 million Hong Kong IPO led by Credit Suisse. The company, which has a 20-year track record, develops, manufactures and sells athletics shoes and sportswear with a particular focus on basketball. It sponsors seven individual players in the US NBA league as well as the Houston Rockets. The company is primarily focused on second- and third-tier cities which are growing faster than many of the tier-one cities.
Li Lang: A $130 million to $150 million IPO led by HSBC and Bank of America Merrill Lynch. This is the first branded Chinese menswear chain to list in Hong Kong.
Metro Pacific: A $300 million to $350 million follow-on offering led by CLSA and UBS. Previously a property developer, the Philippine company has in recent years transformed itself into an investment holding company focused on infrastructure, including utilities and toll roads. It is raising money partly to pay for the acquisition of a 13% stake in Manila Electric Company (Meralco).
Air Asia: A $200 million fully marketed follow-on arranged by CIMB and Credit Suisse. The Malaysia-based budget airline is looking to sell up to 20% of its issued share capital subject to approval at an extraordinary general meeting on September 10. The proceeds will be used to repay debt and to finance working capital requirements.
Jinro: A $650 million Korean IPO led by Samsung and UBS, accompanied by Daeshin and Woori on the domestic tranche. A maker of the popular Soju spirit, the company will launch pre-marketing today.
Tong Yang: A $300 million Korean IPO with up to 40% potentially set aside for international investors. Credit Suisse, Daewoo and Morgan Stanley are joint bookrunners, alongside four domestic banks. The company will be the first Korean life insurer to list on the local stockmarket, giving it a degree of novelty value. Pre-marketing is expected to launch soon.
