The pricings came as Alibaba.com almost tripled in its trading debut on the Hong Kong main board, confirming the widespread desire to own a piece of this company which is seen as a direct play on ChinaÆs trade growth. A provider of an online trading platform that connects Chinese manufacturers with international importers, Alibaba clearly captured the imagination of investors and ended the session at HK$39.50 û a massive 192% gain over the HK$13.50 IPO price. The performance marked the strongest debut in the Hong Kong market ever, according to Dealogic, surpassing the 119% gain achieved by Xinjiang Xinxin Mining last month.
AlibabaÆs performance had a positive impact on the market as a whole and contributed to the turnaround from a decline in the early morning to a session gain of 1.7%. While still modest compared with the 8.1% drop in the previous two sessions, the gain helped to improve sentiment and restored some of the confidence that was lost when the Hang Seng Index tumbled 5% on Monday, market participants say.
Both Zhong An and GCL-Poly completed their final day of the bookbuild on Monday, but sources say neither deal saw any fall-out from the correction either in the form of investors pulling out, or by the addition of price limits. The latter would have been futile, however, as both deals were well oversubscribed and any investors wanting a lower price would probably have ended up with no stock at all.
Zhong An set its price at HK$6.67 for a total deal size of HK$3.62 billion ($467 million). The company, which has the majority of its developments and land bank in the city of Hangzhou in the greater Yangtze River Delta that is one of ChinaÆs wealthiest and fastest growing regions, had already raised the upper end of its price range by 6.7% during the roadshow in response to the strong demand. This meant the shares were being marketed in a range between HK$5 and HK$6.67.
Preliminary estimates suggested that the retail portion of the deal was about 175 times subscribed, which will trigger a full clawback and increase the size of this tranche to 50% of the total deal from the original 10%. Adjusted for this and excluding the $110 million worth of shares set aside for four cornerstone investors, the remaining institutional tranche was approximately 85 times covered, according to a source.
About 350 institutional accounts came into the deal with long-only funds accounted for just over 50% of the demand. The rest was split fairly evenly between private banking and corporate clients on the one hand and hedge funds on the other. A geographical breakdown indicated that 50% of the deal went to Asia, 30% to Europe and the remaining 20% to the US. Deutsche Bank and JPMorgan were the joint bookrunners.
Zhong An sold 27% of the company in the form of 543 million new shares. The deal includes a 15% greenshoe that could boost the total proceeds to $537 million.
Relative to its size, the demand for GCL-Poly was even stronger as investors took the chance to buy into the first Hong Kong-listed power producer to generate all its power from co-generation plants. These plants are more environmentally friendly as they produce power and steam simultaneously and benefit from various government incentives to promote a shift to cleaner energy sources.
The company, which was brought to market by Morgan Stanley, fixed the IPO price at the top of the HK$3.30 to HK$4.10 range for a total deal size of HK$1.18 billion ($152 million). The offer comprised 288 million shares, or 29.3% of its enlarged share capital. Including the 15% greenshoe the deal size could reach $175 million.
The retail tranche ended up about 906 times covered while the institutional tranche was 210 times covered, post the 50% clawback, one source says. More than 250 institutional investors participated in the deal, but the allocation was said to have been concentrated to ensure the shares ended up with investors who werenÆt just looking for short-term gains. Because of the small deal size it would also have been important to ensure that the serious investors received a meaningful enough allocation to make it worthwhile for them to hold on to the stock.
Some investors felt the deal was too small, however, and chose not to participate.
The final price values GCL Poly at 14.7 times its projected 2008 earnings, or at an enterprise value to Ebitda multiple of 8.4 times. Most investors looked at the deal on a P/E basis, however, and at just under 15 times the stock does look quite cheap compared with the other Hong Kong-listed power producers which trade at an average 2008 P/E ratio of 19.6 times. Only China Power International is cheaper at 12.7 times, while China Resources Power trades at 26.6 times and Datang International is quoted at 23.4 times.
With a combined attributable installed capacity of only 388 megawatts, GCL-Poly is significant smaller than its Hong Kong-listed peers, however. Their capacity ranges from 5,936MW for China Power International to 28,787MW for Huaneng Power. It also has a lower profit margin than all the other, except for Huadian Power
GCL-Poly has already agreed to buy a controlling stake in three additional co-generation plants and a significant stake in another four by the end of this year, increasing its attributable installed capacity to 558MW.
Aside from being the sole bookrunner, Morgan Stanley is also a stratgic investor in the power producer and will hold about 19.9% of the company pre-shoe. This will fall to about 16% if the shoe is exercised since the US investment bank will then be required to sell part of its holdings. CCB International acted as joint sponsor.
Zhong AnÆs key selling points included its strong brand recognition and a low-cost land bank of 5.2 million square metres, which sources say makes it well positioned to benefit from the long-term rise in property prices. The volume of completed units will also increase significantly starting from next year, resulting in the bottom line jumping 43 times in 2008 to Rmb829 million.
GCL-Poly and Zhong An will both start trading on November 13.
¬ Haymarket Media Limited. All rights reserved.
