Other parts of the capital markets are finding the going tough at the moment with the number of overnight placements having slowed to a trickle and convertible bond issuance being thinner still. But companies that have chosen to go ahead with their Hong Kong IPOs have found that investor demand is still there û barring of course that they come at the right valuation.
Intime was actually able to raise its initial price range by 9% (at the bottom end of the range) to HK$4.36 to HK$5.39 two days into the institutional roadshow after the response indicated investors were willing to pay a higher price. That decision was said to have raised a few eyebrows when the first day of marketing at the new price coincided with a 4% drop in the Hang Seng Index and an even greater 5.9% tumble in the red-chip index, which tracks mainland companies incorporated offshore and listed in Hong Kong.
But the markets did stabilise and yesterday sole bookrunner Morgan Stanley was able to fix the price at the very top of the new range at HK$5.39. The offer was initially set to price between HK$4 and HK$5.20.
According to a source, there was very little price sensitivity in the book and the deal had a high conversion ratio from the roadshow, which left the institutional portion of the deal more than 35 times covered post claw-back. The claw-back, which saw the retail tranche being increased to 50% from 10%, was triggered after the retail offering ended 231 times subscribed û having attracted HK$56 billion ($7.2 billion) worth of orders.
ôEverybody loves the retail consumption story,ö notes one observer, referring to the strong demand for Intime which operates five department stores in the affluent Zhejiang province and is planning to open at least 10 more in the next five years.
It is also looking to expand outside its home province, including Beijing where it will open its first store in 2008 in a joint venture with Lotte Shopping, the leading department store operator in South Korea.
On the institutional side, the investor interest came primarily from Asia with the source estimating the demand split to be 60% Asia, 25% US and 15% Europe.
The final price valued Intime at 29 times its projected 2007 earnings, which compares with 40 times for Parkson Retail and just over 30 times for Golden Eagle Retail. The latter traded down during the market correction but bounced back strongly over the last two to three days allowing Intime to price at a marginal discount.
The companyÆs bottom line is expected to increase about 60% this year from an estimated Rmb205 million ($26.5 million) in 2006. This would come on the back of 50% growth in 2006 and 46% in 2005.
Intime sold 450 million new shares, or 25% of the company. There is a 15% greenshoe of all secondary shares provided by private equity firm Warburg Pincus, which held a 35% stake in the company prior to the offering. That will fall to 26.3% following the IPO and if the greenshoe is exercised in full to 22.5%. In case of the latter, the total proceeds from the offering will increase to $358 million.
The trading debut is scheduled for March 20.
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