Shenguan Holdings prices at the top to raise $160 million

Shenguan Holdings (Group) has raised HK$1.24 billion ($160 million) ahead of its listing on October 13. The sausage coating manufacturer conducted its roadshow during a period in which all Hong Kong initial public offerings fell in the secondary market, but despite this, Shenguan still managed to price at the top of its indicative range.

The IPO consisted of 400 million shares that were offered in a range between $2.10 and HK$3.10. If a 15% greenshoe is fully exercised, the final deal size could increase to as much as $184 million.

The IPO price values the company at 15.6 times projected earnings for 2009, which puts it at a premium to other companies in the same industry. Among the overseas comparables are Spanish company Viscofan, which is trading at around 13 times 2009 projected earnings, and British company Devro, which is trading at around 12.1 times.

Shenguan is involved in the highly specialist business of making edible coating -- essentially the skin -- for sausage meat. It has 106 production lines in the Chinese city of Wuzhou, pumping out 2,417 million metres of the stuff every year. These production lines are already running at full capacity and the company will use 60% of the money raised in the IPO to expand its production facilities. The new facilities are expected to open by the end of next year.

The Shenguan deal is the last of a flurry of Hong Kong IPOs that hit the markets in September. While there are still a number of companies lining up for a listing this year, the IPO market looks very different now compared to when Shenguan launched its deal on September 25 and many of the listing hopefuls are currently biding their time while waiting for the secondary market to improve again.

Sinopharm Group, which started trading on September 24, remains the last IPO of size to have traded up on its debut. With the exception of China Resources Cement which closed unchanged when it started trading on Tuesday (but fell on day two), all market newcomers since Sinopharm have lost ground on their first day and remain below their respective IPO prices today.

Apparel stocks such as China Lilang and Peak Sport Products were down by 0.8% and 17% respectively on their first day, while China South City Holdings and Glorious Property Holdings, which both have exposure to Chinese property, fell 23% and 14.5% respectively.

Investors who participated in Shenguan's IPO are hoping that the next set of debutantes will improve this track record. Ausnutria Dairy, China Vanadium Titano-Magnetite Mining and Yingde Gases all start trading in Hong Kong today and will be followed by Wynn Macau tomorrow. The first day performance of these four companies will be key for determining if there is any confidence left in Hong Kong IPOs.

China Merchants Securities and Macquarie were joint bookrunners of Shenguan's IPO.