AAG Energy postpones Hong Kong IPO

The Chinese natural gas producer blames a challenging IPO market, while Zhengzhou Coal’s stock slides nearly 9% in its trading debut.

AAG Energy, a Chinese natural gas producer, has decided to put off its initial public offering of $160 million to $200 million due to a difficult environment for IPOs in Hong Kong, a source said yesterday.

The company was expected to start the bookbuilding yesterday with the aim of listing on December 20, but after about a week of investor education it decided to postpone the launch. While there is no new timetable at the moment, the company will keep its options open, the source said.

AAG Energy was planning to use more than half of the proceeds for the development of coalbed methane in the Mabi concession, which is situated in Shanxi province, in the southern Qinshui Basin. The offering was intended to bring the company’s free-float to 25% of its enlarged share capital.

The company is backed by private equity firms Warburg Pincus and Baring Private Equity Asia, according to the source.

Barclays and J.P. Morgan are global coordinators for the deal, while Haitong Securities joins them as a bookrunner.

The news came as Zhengzhou Coal Mining Machinery fell 8.8% on its first day of trading in Hong Kong yesterday. The drop reflected the tough market environment and sent a sombre message to other companies coming to list in the city.

The Chinese mining machinery company, which is already listed in Shanghai, raised $296 million from its Hong Kong IPO.

The deal got across the line despite lacklustre demand. But in a rare move, some of its joint bookrunners — Citic Securities, UBS and Deutsche Bank — bought a total of 27.8 million shares, or 12.6% of the overall deal, to cover a demand shortfall, the company said in a statement earlier in the week. This means that the three banks spent a combined $37 million to make sure the deal didn’t fall apart. Assuming they didn’t sell any shares yesterday, they are now sitting on a loss of $3.3 million.

Citic took up 22.4 million shares, UBS bought 4.6 million shares and Deutsche Bank took 710,000 shares, the company said.

Citic Securities, Deutsche Bank, J.P. Morgan and UBS were joint bookrunners while the deal was going on and ICBC International was added to the line-up at the last minute after it was able to re-confirm in full a key order that it had brought into the deal.

PICC Group, which raised $3.1 billion from Hong Kong’s biggest IPO this year, will start trading on Friday.

Despite the challenging market, more companies are seeking to float their shares in Hong Kong before the end of the year.

Last Thursday, bankers started pre-marketing for China Machinery Engineering Corporation, a state-owned engineering contractor, which is targeting to raise about $500 million from its offering.

It is expected to kick off a four-day roadshow next Tuesday (December 11) and is targeting a listing on December 21, a source said. ABC International, BOC International, CIMB and ICBC International are arranging the deal.

The company has a primary focus on engineering, procurement and construction projects and particular expertise in the power sector, according to a syndicate research report. It also has a trading business covering more than 150 countries and regions. Its main comparables include China CAMC Engineering Company, Shanghai Electric, Dongfang Electric and Harbin Electric, according to the report.

China Machinery Engineering is expected to book a net profit of Rmb2 billion ($318 million) this year, an increase from Rmb1.5 billion in 2011 and Rmb1.1 billion in 2010. The syndicate report puts the company’s estimated value at HK$22.7 billion to HK$29.6 billion, which represents 9.2 times to 12 times this year’s earnings.

Other deals in the pipeline include Century Energy, a Chinese coal mining company that is seeking to raise about $150 million. Bankers started pre-marketing the deal last Monday (November 26), but the rest of the timetable has not yet been decided, sources say. BNP Paribas, ICBC International and Morgan Stanley are arranging the deal.

Wison Engineering Services already gauged investor appetite last month for its offering of about $200 million to $300 million, but there is no update on when it will actually launch the deal, a source said.

Sources have also said that Chinalco Mining may be returning to the market before the end of the year. Pre-marketing was done in May but the company never launched the deal. It was aiming for an IPO of up to $1 billion at the time. The deal size is now seen around $250 million to $350 million, but no timetable has been set yet, according to a source.

Chinalco Mining is a unit of state-owned Aluminum Corp of China and the owner of a copper deposit in Peru.

BNP Paribas, CCB International, CICC, HSBC, Morgan Stanley and Standard Chartered are arranging the deal.

The IPO volume in Hong Kong stands at $10.1 billion year-to-date, down 66% from $30 billion raised during the same period last year, according to Dealogic. Hong Kong currently ranks fourth in terms of new listings after New York, Nasdaq and Tokyo, the data show.

The Hang Seng Index, which rose 2.2% yesterday as Asian stocks were boosted by hopes for reforms by China’s new leadership, has gained almost 21% since the start of the year.

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