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Termbray Petro-king Oilfield Services, an independent China-based provider of high-end oilfield services, has raised HK$820 million ($106 million) from its Hong Kong initial public offering after fixing the price just below the top of the indicative range. The stock is slated to start trading on March 6.
After shunning IPOs last year, Hong Kong retail investors came in to the deal with vigour, continuing a trend seen on other recent deals as well. The retail portion of the offering was 33 times covered, triggering a clawback that boosted the tranche to 30% of the deal, from the initial plan for 10%.
The larger institutional tranche was more than 12 times covered, a source said yesterday. Five cornerstone investors took up a combined $35 million worth of shares, accounting for about one-third of the final deal size.
Meanwhile, Xinchen China Power Holdings, a manufacturer of light-duty gasoline and diesel engines, started the management roadshow and bookbuilding yesterday for a Hong Kong IPO of between HK$689.5 million and HK$877.5 million ($89 million to $113 million). It plans to use a majority of the proceeds to expand its production capacity.
The bookbuilding is expected to continue until March 5, when pricing and allocation are to be set. The Hong Kong public offering starts today and the stock is scheduled to start trading on March 13.
Petro-king and Xinchen China are the first two companies to hit the Hong Kong IPO market after the Lunar New Year. And they come against a backdrop of recent volatility in the global stock markets. After a strong start to the year, stocks have come under pressure in recent sessions as worries about the outlook for the US and European economies have prompted profit taking.
Hong Kong’s Hang Seng Index, which inched up 0.3% yesterday, is now down 0.4% so far this year. At one point in late January the index was up more than 5% before it began paring the gains. It climbed 23% in 2012.
Before the Petro-king transaction, IPO volumes in Hong Kong amounted to $807 million year-to-date, compared to $1 billion during the same period last year, according to Dealogic. The biggest deals so far are Chinalco Mining Corporation International’s $399 million IPO in late January, followed by a $160 million offering by PanAsialum, a Chinese maker of iPad casings and other aluminium products.
Petro-king
Petro-king sold 250 million shares at HK$3.28 each, which translated into a 2013 price-to-earnings ratio of 12.5 times, the source said. The deal was marketed at a price between HK$2.78 and HK$3.39, and could have raised as much as $109 million at the top of the range. The price range valued the company at a 2013 P/E multiple of between 10.6 times and 12.9 times.
The base offering represented 25% of the company. There is also a 15% greenshoe option, which could increase the total proceeds to $122 million, based on the final offering price. All shares are new.
The deal attracted strong institutional demand, largely from high-quality long-only investors, and more than 100 accounts submitted orders, the source said. It drew very strong interest from Southeast Asia.
Investors like the sector and were keen to get more exposure, the person noted. They also like the idea of a China player with strong relationships with companies such as Sinopec, and the geographical spread of the business.
The final price puts Petro-king at a discount to its two main Hong Kong-listed comparables — Anton Oilfield Services Group and SPT Energy Group — which are trading at 2013 price-to-earnings multiples of around 22.5 times and 12.8 times, respectively, according to Bloomberg data.
Petro-king is one of China’s biggest providers of a number of high-end oilfield technologies such as turbine-drilling and multistage fracturing, according to its listing prospectus.
It plans to use the IPO proceeds to establish a research, development and manufacturing base in China, and to acquire a range of fracturing-related tools and equipment to expand its scale of operation on unconventional gas, including tight and shale gas. It also plans to invest part of the money in R&D into new services and technologies such as turbine drilling tools and to enhance its regional offices in China and overseas.
Chinese oil and gas companies, such as Sinopec, CNPC and Cnooc mainly use Petro-king’s oilfield project services for their local projects, while tapping into both its consultancy services and oilfield project services for their overseas operations. In 2009 to 2011, as well as for the nine months to September 2012, the company’s biggest customers were mostly subsidiaries and joint ventures of Sinopec.
The five cornerstone investors that signed up before launch were Minmetals Private Equity ($10 million), Value Partners ($10 million), Everbright Private Equity ($9 million), Clarion Valley Capital ($4 million) and SinoSteel ($2 million). They are subject to a six-month lock-up.
CCB International, China Galaxy and CIMB were joint bookrunners for the deal.
Other recent deals that have drawn an enthusiastic retail response include Chinalco Mining, whose retail tranche was about 25 times covered, and PanAsialum, whose 10% retail tranche was more than 50 times subscribed. Time Watch, which raised $104 million from its Hong Kong IPO last month, saw the retail portion of its deal a few hundred times subscribed, which increased the size of the retail tranche to 50% of the overall deal — the maximum under Hong Kong regulations.
Xinchen China Power
Meanwhile, Xinchen China, which is 42.5%-owned by Hong Kong-listed Brilliance China Automotive Holdings, is offering 313.4 million shares at a price between HK$2.20 and HK$2.80 each. The price range values the company at a 2013 P/E ratio of between 6.8 times and 8.6 times.
The base deal size represents 25% of Xinchen China and will reduce Brilliance China’s stake to about 31.9%.
Of the deal, 10% is earmarked for the Hong Kong public offering, while the remaining 90% is targeted to institutional investors. The deal comes with a 15% greenshoe option that could increase the deal size to as much as $130 million. All shares are new.
There are no cornerstone investors for this deal, but some good orders were coming in on the first day, a source said yesterday.
The company has no direct comparables, but investors are looking at companies such as Weichai Power, a Hong Kong-listed manufacturer of high-speed diesel engines in China. Weichai Power is currently trading at a 2013 P/E multiple of around 11.6 times, according to Bloomberg data.
Xinchen China plans to use the proceeds from its IPO to fund the expansion of production capacity and the development of new products, as well as for research and development, another source has said. Buying into the company is a way of getting leveraged exposure to the growth of domestic Chinese auto producers, the person said.
According to a listing document posted on the Hong Kong stock exchange website, Xinchen China is one of the leading manufacturers of engines for passenger cars (PV) and light commercial vehicles (LCV) in the independent branded segment of the China market in terms of sales volume. It develops and sells both light-duty petrol and diesel engines, and focuses on engines with a high performance-to-price ratio, as well as low fuel consumption, emissions and noise, for the mid- to low-end auto market.
Bank of America Merrill Lynch was initially mandated as the sole bookrunner, but Deutsche Bank was later added to the line-up. The two banks are now joint global coordinators and bookrunners for the deal. BoA Merrill remains the sole sponsor.
