Kerry Logistics Network has raised HK$2.2 billion ($284 million) from its initial public offering in Hong Kong after fixing the price at the top of the indicated range at HK$10.20 per share.
The deal, which is a spin-off from Hong Kong-listed Kerry Properties, attracted massive demand from institutional investors and even top-tier global investors received only a fraction of their orders, sources said. According to one banker, about 60% of the institutional orders got not allocation at all.
The current appetite for new Hong Kong listings was also evident in the secondary market yesterday where China Cinda Asset Management jumped 25.7% on its first day of trading. This was more than the 17% gain that was indicated in grey market trading on Wednesday and is a surprisingly large move for a company that raised as much as $2.45 billion from the IPO. At one point in the mid-morning, the stock was up almost 34%.
For sure, investors saw their orders scaled back significantly for Cinda as well. According to sources, the distressed asset manager received more than $40 billion of orders from some 700 institutional investors. At the same time the amount of stock available to them was reduced to just under $900 million after 44.4% of the total deal went to 10 cornerstone investors and another 20% was allocated to retail investors due to a full clawback.
But the buying in the aftermarket is also believed to be fueled by the fact that international investors are very underweight China and are looking for opportunities to increase their exposure. Stocks that promise good growth opportunities and are offered at a reasonably attractive valuation are key targets.
Another popular IPO aside from Cinda and Kerry Logistics that is clearly benefitting from this trend right now, according to sources, is Fu Shou Yuan. The funeral services provider is only looking to raise about $200 million but has received billions of dollars of demand already even though the bookrunners have told institutional investors to cap their orders at no more than 10% of the total deal size.
Kerry offered approximately 216.07 million new shares, or 13% of its enlarged share capital pre-greenshoe. The final price of HK$10.80 (versus a range of HK$8.80 to HK$10.20) implied a market capitalisation of $2.2 billion and a 2014 price-to-earnings ratio of 17.3 times.
This is significant discount to global peers, including Germany’s Kuehne & Nagel, which trade at about 22 to 23 times, a source said earlier.
The retail demand wasn’t quite as strong as for Cinda, which may partly be due to the fact that Kerry Properties is also distributing close to 44% of Kerry Logistics to its existing shareholders on the basis of one new share in the logistics company for every two shares they own in the parent. That means many retail investors are already receiving shares in Kerry Logistics for free, which may have led them to subscribe for fewer or no shares in the IPO.
That said, the retail portion of the deal was still about 35 times covered, which triggered a first level clawback that increased the size of the retail tranche to 30% from 10%.
The key will be to see what the Kerry Properties shareholders will do with these shares when Kerry Logistics starts trading on December 19. If they choose to sell them, it may put some pressure on the stock. However, given the level of oversubscription, there should be enough demand from other investors to absorb such selling.
There was no information about the exact size of the institutional demand, but sources used words such as “crazily oversubscribed”, “a very big number” and “almost stupid” to describe the final order book. As reported earlier, the deal was already multiple times covered at launch by anchor orders and other investors indicating they wanted shares.
Most of the demand came from Asia, but there were some good orders from US and European names as well. In total, more than 200 institutional accounts came into the transaction and the list read a bit like a “who’s who” of quality global long-only investors, one source said.
The allocation focused primarily on long-only investors while hedge funds and private wealth-type accounts were said to have been mostly ignored.
Kerry Logistics has integrated logistics and international freight forwarding businesses in 35 countries across Asia, Australia, Europe and North and South America, but last year it derived about 82% of its revenues from Asia. According to independent industry consultant Armstrong & Associates, it is the largest third-party logistics company in Hong Kong and the third-largest in Greater China and Asean based on revenues.
The company is backed by the Kerry Group, which is controlled by the Malaysia-based Kuok family and owns 56% of Kerry Properties as well as substantial stakes in the Shangri-La Asia hotel group and the South China Morning Post.
Kerry Properties’ ownership will fall from 100% to 43.3% after the IPO.
The deal comes with a 15% greenshoe which could increase the total deal size to $327 million if it is exercised in full. In that case, Kerry Properties stake will drop to 42.5%, while the existing shareholders of the parent will end up with 42.7%.
BOC International, Citi, HSBC and Morgan Stanley were joint global coordinators for the IPO as well as joint bookrunners together with CIMB.
