The deal size is at the low end of the $500 million to $700 million deal initially talked about, which is likely a reflection of the downturn in the secondary market over the past three weeks that has pushed valuations lower. However, Uni-PresidentÆs first day of marketing coincided with a strong day in the market with the Hang Seng Index gaining 4.1% to 27,626 points. Market watchers also noted that Friday and Monday together made up the first two days of concurrent gains since November 13-14, which is a positive signal that the bottom of the current downturn may have been reached.
A spin-off from Taiwan food conglomerate Uni-President Enterprises, the listing candidate is a China-based entity focusing on the production of beverages and instant noodles, making it a classic beneficiary of the growth in Chinese consumption and the rise in disposable incomes. Like many of the other Chinese consumer-focused companies that have listed in Hong Kong over the past couple of years, Uni-President is one of the leaders in its field, which should help enhance its standing with investors.
According to research firm AC Nielsen, the company was the second largest manufacturer of both juice drinks and ready-to-drink teas in the first nine months of this year with a market share of 29.1% for juices and 22.8% for teas. It was also the third largest instant noodle manufacturer, accounting for 11.4% of the market. The company focused mainly on instant noodles when it first set up shop in China in 1992, but in recent years it is the beverage segment that has shown the most rapid growth. The company attributes this partly to an increased popularity of non-carbonated drinks as consumers become ever more health conscious.
The beverage segment accounted for 73.8% of total revenues in the first six months this year, versus 25.6% for the noodles division.
The company is offering 881.7 million new shares at a price of HK$3.75 and HK$4.68 apiece. The deal has a 15% greenshoe that could boost total proceeds to $610 million. As usual, 10% has been earmarked for retail investors, although this portion may be increased to up to 50% if certain clawback thresholds are reached.
To help attract demand to the offering and anchor the deal after it starts trading, joint bookrunners Morgan Stanley and UBS have arranged for six cornerstone investors to buy a combined $120 million worth of shares. This will see them take between 22.6% and 25.9% of the deal, depending on the price. Each of the investors will buy $20 million worth of shares. They are: Chow Tai Fook; a wholly-owned subsidiary of Goldman Sachs; the Government of Singapore Investment Corp; an investment vehicle owned by Leslie Lee Alexander who is the owner of US basketball team Houston Rockets; Robert Kuok of the Kerry Group; and the Kwok family, the controlling shareholders of Sun Hung Kai Properties.
The price range values the company at 19.5 to 21.8 times its projected 2008 earnings, based on the blended syndicate estimates. This compares with 34.2 times for Tingyi, which is considered the closest comparable given that it too produces both instant noodles and beverages. Other companies looked at by investors include milk producer Mengniu, which trades at 28.6 times next yearÆs earnings, and its parent company Uni-President Enterprises at 16.9 times.
Sources say the key selling points include the companyÆs diversified multi-brand strategy and its focus on research and development that enables it to renew its product portfolio with new flavours and improved packaging on a regular basis.
The offering will stay open until December 7 when the issuer is also due to fix the final price. The trading debut is scheduled for December 17.
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