Another three companies launch Hong Kong IPOs

China Polymetallic Mining aims to raise up to $163 million, while confectionary maker China Lifestyle eyes $96 million and BMW dealer Baoxin Auto targets as much as $527 million.

The host of companies that have launched IPOs in Hong Kong in recent weeks with the aim of tapping the market before year-end was joined yesterday by Chow Tai Fook Jewellery (see story published on our website yesterday) and another three issuers that are seeking to raise a combined $786 million.

China Polymetallic Mining, a Chinese lead, zinc and silver miner, launched an institutional roadshow for an IPO of between HK$1.11 billion and HK$1.27 billion ($143 million to $163 million), according to a term sheet seen by FinanceAsia. The company had been expected to raise between $150 million and $250 million.

Also hitting the market was China Lifestyle Food and Beverages Group, a confectionary maker that is seeking to raise $96 million from a fixed-price offering, and Baoxin Auto Group, a BMW dealer, which is targeting as much as $527 million.

China Polymetallic is offering 500 million shares at a price ranging from HK$2.22 to HK$2.54 apiece. The deal size could be increased to as much as $187.5 million, if the 15% greenshoe is exercised in full. The deal accounts for 25% of the equity capital pre-shoe and 27.7% post-shoe. All the shares are new.

The Chinese miner has earmarked 10% of the deal for Hong Kong retail investors and will offer the remaining 90% to institutional investors.

SAIF Partners IV, which is a private equity fund that focuses on growth equity in Greater China and India, has agreed to buy $30 million worth of shares, or about 19% of the deal at the top end of the price range.

Previously the company also secured a round of pre-IPO funding from four investors: Deutsche Bank Asset Management, Morgan Stanley Private Equity, Baker Steel and KR Lenders.

The company, the cornerstone investor and the pre-IPO investors all have a lock-up period of six months.

The Chinese company started mining operations only recently and is still running at low capacity. It already has plans to further increase its presence in Yunnan Province, which has the second-largest lead and zinc reserves and the third-largest silver resources in China, according to a Hatch report cited in a listing document published on the Hong Kong stock exchange website.

For the six months to June 2011, the company booked a loss of Rmb245.6 million ($38 million), a further decline from a Rmb2.8 million loss for the same period last year. The company said it failed to generate revenue from its operations as it did not undertake any commercial production during these periods, but focused on mine planning, construction and infrastructure development.

A source said that there is no company that does exactly the same business as China Polymetallic. However, investors are likely to compare it to other prominent players in the China commodities sector, including Zijin Mining, China’s largest gold producer, and China Gold International Resources, a mineral development company.

In May this year, commodities trader and mining company Glencore took advantage of the demand for commodities in emerging markets such as China to raise $10 billion from a dual listing in London and Hong Kong. The offering ranks as the biggest IPO globally this year.

China Polymetallic currently owns and operates one large-scale, high-grade lead-zinc-silver polymetallic mine in Yunnan Province, called the Shizishan Mine. It plans to use 12% of the IPO proceeds to finance a ramp-up at the mine, while 60% is to be used for acquisitions and development of additional resources. In the listing document, the company said it plans to acquire the Liziping Mine, another lead-zinc-silver polymetallic mine in Yunnan, to further tap into the abundant non-ferrous metal resources in the province.

The institutional roadshow will close on December 7 when the final price will be set. The Hong Kong public offering will run from December 2 to 7. The first day of trading is scheduled for December 14.   

Citi is a sole global coordinator and a joint bookrunner together with Bocom International and Renaissance Capital.

China Lifestyle Food and Beverages, which had a 10.3% share of the jelly products market in China in 2010, plans to use about 50% of its IPO proceeds for capital expenditure for plants and equipment. The rest will be used for advertising, the expansion of its distribution network and the improvement of its research and development capabilities.

The maker of jelly and candy products is offering 282 million shares at a fixed price of HK$2.65 each, which will allow it to raise HK$747.3 million ($96 million). This could be expanded to as much as $110 million if the 15% greenshoe is exercised in full. The base deal accounts for 25% of the share capital and is made up of 80% new shares and 20% existing shares. All the shares in the greenshoe are new.

The company plans to offer 90% of the deal to institutional investors, while the rest has been set aside for Hong Kong retail investors.

The IPO price values China Lifestyle at a 2011 price-to-earnings ratio of 11.5 times pre-shoe and 11.9 times post-shoe, which compares with about 15 times for the overall consumer sector, according to Bloomberg data. The company, which generated more than 80% of its 2010 sales from jelly products, will likely book a profit of Rmb212 million ($33 million) this year, according to a research consensus.

The management roadshow and institutional bookbuilding will run until December 2, while the Hong Kong public offering will be open from November 29 to December 2. The trading debut is scheduled for December 9. BOC International and Citi are joint bookrunners.

Meanwhile, Baoxin Auto Group is seeking to raise between HK$3.22 billion and HK$4.1 billion ($415 million to $527 million) with the help of joint bookrunners China Merchants Bank, J.P. Morgan and Morgan Stanley. The size has come down quite a bit compared with talk during pre-marketing of a deal between $500 million and $800 million. According to a source this is partly due to the fact that the deal will now only account for 15% of the share capital, as opposed to earlier plans to sell 25%.

Baoxin is one of the largest BMW dealerships in China but also sells other brands, including Audi, Cadillac, Land Rover & Jaguar, Toyota, Honda, Nissan, Volkswagen and Hyundai.

The IPO is made up of 379.32 million shares, of which 87% are new. They are offered at a price between HK$8.50 and HK$10.80 apiece, which translates into a 2012 price-to-earnings multiple of 9.2 to 11.7 times.

The total deal size could increase to as much as $605 million if a 15% greenshoe is exercised in full. Half of the greenshoe is made up of new shares, while the other half is existing shares.

The price will be fixed after the US close on December 7 and the trading debut is scheduled for December 14 — the same day as China Polymetallic and one day ahead of Chow Tai Fook Jewellery. The latter is aiming to raise up to $2.83 billion from its base offering, but the deal size could increase to as much as $3.4 billion if a 20% upsize option is put to use.

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