Guodian Technology and Hosa join IPO rush in Hong Kong

Guodian Technology and Environment Group yesterday launched an institutional roadshow for an initial public offering of between HK$4.49 billion and HK$5.03 billion ($578 million to $647 million) as the last wave of companies hoping to list in 2011 hit the market in Hong Kong.

Beijing-based Guodian Technology is the biggest provider of environmental protection and energy conservation solutions for coal-fired power plants in China, and also makes renewable energy equipment. It is part of China Guodian Group, one of China’s top five nationwide power producers, and is the sixth company in the group to seek a public listing after wind farm operator China Longyuan Power Group, which is listed in Hong Kong, and four companies that are listed in Shanghai. Among the latter is GD Power Development, which owns 50% of Guodian Technology before the IPO. The remaining 50% is directly owned by Guodian Group.

The company is offering 30% of its share capital in the form of 2.08 billion shares at a price ranging from HK$2.16 to HK$2.42 apiece. The deal size could be increased to as much as $744 million if the 15% greenshoe is exercised in full. All the shares are new.

The company has set aside 10% of the deal for Hong Kong retail investors and will offer the remaining 90% to institutional investors. However, it has also received commitments from five cornerstone investors that will buy a combined $210 million worth of shares, or 36.3% of the deal at the low end of the price range. The biggest contributor is private equity fund SAIF Partners, which is investing $80 million, followed by China High Speed Transmission Equipment Group, a Hong Kong-listed manufacturer of wind power transmission gear that is a supplier to Guodian Technology and will take up $40 million worth of shares. The other three cornerstones, which will each invest $30 million, are also strategic in nature. They are: wind power producer China Datang Renewable, power generator China Huadian Corp, and transmission company State Grid.

The price range values Guodian Technology at 8.5 times to 9.5 times its earnings for 2012 on a pre-shoe basis. Given the diversified nature of its business, it will be compared to a blend of companies. The biggest influence will be international environmental protection and energy conservation companies — Guodian Technology generates about 50% of its revenues from this type of business — which trade at forward price-to-earnings multiples in the low- to mid-teens.

Most of the rest of its top-line income comes from wind power equipment, where Xingjiang Goldwind Science & Technology is viewed as the closest comp. On the solar power side, GCL-Poly Energy Holdings, which makes polysilicon and wafers and operates solar farms and other alternative energy power plants, is the main reference.

For the six months ended in June 2011, Guodian Technology booked a 93.2% jump in operating profit from the same period a year earlier to Rmb496.3 million ($78 million), the company said in a listing document published on the Hong Kong stock exchange website. Companies that are part of the Guodian group are its largest customers and made up about 53% of its revenues in 2010 and just over 59% in the first six months this year.

The company noted that its competitive strengths lie in its dominant or leading market positions in several growing industries. Among them, the wind and solar power industries have seen robust growth and are expected to grow further in the future, it said.

The company is also expected to continue to benefit from the Chinese government’s commitment to reduce carbon dioxide emissions per unit of gross domestic product by up to 45% and to reduce energy consumption per unit of GDP by 31% in 2020, compared to their respective levels in 2005, according to the listing document.

Guodian Technology provides a variety of technologies and services to improve the efficiency of conventional coal-fired power plants and to reduce their emission of pollutants. Coal is the largest fuel source for power plants in China.

The institutional roadshow and bookbuilding will close on December 14, and the final price will be set a day later on December 15. The Hong Kong public offering will run from December 9 to 14. The first day of trading is scheduled for December 21.

CICC and UBS are joint global coordinators, and RBS joins them as a bookrunner.

Another company launching a management roadshow yesterday was Hosa International, which is aiming to raise HK$640 million ($82 million) from a Hong Kong listing.

The sportswear maker, which initially tried to list in June, is offering 400 million shares at a fixed price of HK$1.60 per share. The deal size could be expanded to $95 million, if a 15% greenshoe is exercised in full.

This is well below the up to $211 million that the company was hoping to raise four months ago before it called off the attempt “in light of the unforeseen adverse market conditions and...continuing market volatility”. According a source at the time, the deal was covered at the bottom of the price range, but Hosa and its bookrunners were worried that investors would turn around and sell the shares again if the market was to continue to deteriorate between the pricing and the trading debut.

The current offering accounts for 25% of the equity capital pre-shoe and 27.7% post-shoe. The company has earmarked 10% of the deal for Hong Kong retail investors and will offer the remaining 90% to institutional investors.

Hosa has secured one cornerstone investor, SD Family Fund, which is a family trust of Hui Lin Chit, the deputy chairman, CEO and co-founder of Hengan International Group, and his family. The fund has agreed to buy $10 million worth of shares, or about 12% of the base deal, and will be subject to a six-month lockup.

The company plans to use about 35% of the IPO proceeds to expand its distribution network, to support its distributors in opening new retail outlets and to upgrade existing retail outlets by the end of 2015, according to a term sheet. Hosa plans to open more than 50 new retail outlets operated by its distributors or sub-distributors and to increase its number of retail outlets to more than 1,200, spanning 28 provinces and municipalities, by the end of 2011.

The rest of the proceeds are expected to be used for purposes such as marketing, expansion of production capacity, and research, design and development.

The management roadshow and institutional bookbuilding is expected to close on December 9 and the Hong Kong public offering will run from today until December 9. The trading debut is scheduled for December 16. Bank of America Merrill Lynch, which arranged the June offering on a sole basis, is a joint bookrunner together with BOC International, which has come on board for company’s second attempt to go public.

Another company that returned to the market yesterday was Beijing Jingneng Clean Energy, which started pre-marketing for a Hong Kong IPO that is expected to raise about $250 million. It too pulled an earlier listing attempt in June when it was seeking to raise up to $630 million. The company operates gas-fired and wind-powered electricity generating plants.

Barclays Capital, BOC International, Goldman Sachs, Macquarie and UBS, which were on the ticket in June, are acting as joint bookrunners this time around as well, but are being joined by Bocom International, China Merchants Bank and Daiwa.

The banks will pre-market the deal this week and are planning to kick off both the institutional bookbuilding and the Hong Kong public offer next Monday. The deal will price after the US close on December 15, which will allow for a trading debut on December 22 — just two days ahead of the Christmas holidays.

Meanwhile, China Lifestyle Food and Beverages, a maker of jelly and candy products, completed its HK$747.3 million ($96 million) IPO over the weekend. The company sold 25% of its share capital in the form of 282 million shares at a fixed price of HK$2.65 each, which valued it at 11.5 times this year’s earnings.

There was no information on the demand from institutional investors, but according to a source, the 10% retail tranche was two times oversubscribed.

The trading debut is scheduled for December 9. BOC International and Citi are joint bookrunners.