Asian IPO pipeline

Asian IPO pipeline suggests a relatively busy month ahead

The start of pre-marketing for Graff Diamonds' IPO this week marks the beginning of a series of billion dollar offerings that are expected to hit the market in the next few weeks.

It’s been a slow start to the year, but initial public offering activity in Asia is starting to pick up and the current pipeline suggests investors will have a healthy number of large deals to choose from around the region between late May and early July.

Investors are paying close attention to Graff Diamonds' IPO

The first among these to hit the market is likely to be Graff Diamonds, which started pre-marketing on Monday this week and is planning to kick off its management roadshow on May 21. This should allow for a trading debut towards the end of the first week of June. The London-based diamond retailer that targets primarily the world’s ultra-rich — 47% of its sales last year came from items priced above $1 million — is expected to raise about $1 billion from the IPO, although that number is still a bit fluid as the issuer has yet to decide how big a portion of the company will be put up for sale. The size of the secondary portion is also still under discussion.

Graff is active across the value chain (except for the mining part) — from the sourcing of the rough through the cutting and polishing, design and manufacturing to the sale of the finished product to retail customers. It is well-known for its purchases of super expensive diamonds at auctions and has what analysts describe as an “impressive” inventory of diamonds and finished jewellery that, according to one syndicate analyst report, had a book value of $651 million at the end of last year.

The main attraction for investors, however, is expected to be the company’s relatively low penetration in Asia — a region that is expected to be the top growth driver for most luxury goods companies going forward. As of the end of last year, Graff had only five stores in Asia, out of 18 directly operated stores and 13 franchises globally. This year it plans to open five new stores in total, all of which will be in Asia. This should lead to increased brand awareness and visibility in the region and help boost sales. In 2011, Asia accounted for 19% of the company’s retail sales, although the syndicate analyst report estimates the sale to Asian customers to be somewhat higher at 25% to 30% as many customers buy Graff diamonds when they travel to Europe.

Credit Suisse, Deutsche Bank, Goldman Sachs and Morgan Stanley are joint global coordinators and bookrunners, while HSBC is a joint bookrunner.

Formula One
Lining up behind Graff is another headline-grabbing transaction — Formula One. The company, which owns the commercial rights to the 20 Grand Prix circuit that attracts hundreds of millions of TV viewers around the world every year, is looking to list in Singapore and is aiming for a deal size of as much as $2 billion to $3 billion, according to sources. Most of that — about two-thirds — will come from secondary shares sold by its existing shareholders, including private equity firm CVC Capital Partners, which currently owns 63.4%, and the administrators of the Lehman Brothers bankruptcy, which hold about 15%.

Befitting for a company that is a lot about horse power, the Formula One IPO is on an accelerated timetable with a targeted listing date at the end of June. The banks involved in the deal are currently running a cornerstone process to support what could become one of the largest IPOs in Asia this year. It is also the first company of its kind — a combination of sports branding, media content and advertising — to seek a listing in Asia. The company behind the Manchester United football club was supposed to test the market in the fourth quarter last year, but withdrew its IPO plans amid a highly volatile market and indications that investors viewed its targeted valuation as being too rich.

Goldman Sachs, Morgan Stanley and UBS are joint global coordinators and bookrunners for the Formula One offering. CIMB, DBS and Banco Santander are joint bookrunners.

Felda Global
Another multi-billion offering in the works is Felda Global Ventures, a Malaysian government-owned agricultural commodities company with a key focus on palm oil, rubber and sugar. The IPO could raise up to $3.5 billion, based on a maximum price of M$4.65 per share that was announced in a government notice late last week and a plan to sell up to 2.298 billion shares, including a 5% overallotment option. The max price could mark the top of the price range, but it is also possible for the bookrunners to set the range below the max price, sources say.

Bankers are currently building a cornerstone tranche for this deal too and official pre-marketing may start next week, one source said. The listing is targeted for the end of June. CIMB, Maybank and Morgan Stanley are joint global coordinators and Deutsche Bank and J.P. Morgan are joining them as bookrunners.

Staying on the commodities theme, sources say state-owned Aluminum Corp of China (Chinalco) is getting close to launching a Hong Kong IPO of its copper mining assets in Peru. The early-stage mining business is working towards a deal size of about $1 billion and is on a similar timetable to Felda and Formula One in the sense that bankers are currently doing some early cornerstone marketing. The business is a sister company to Hong Kong-listing Aluminum Corp of China Ltd (Chalco), which is the largest aluminium and alumina producer in China. BNP Paribas, CICC, Morgan Stanley and Standard Chartered are working on the transaction.

China Nonferrous Mining
Another Chinese copper mining company, China Nonferrous Mining Corp (CNMC), is also getting close to launching a Hong Kong IPO that is targeting at least $400 million. The company, which is part of the state-owned China Nonferrous Mining Corp Group, has been pre-marketing for a couple of weeks already but one source has said the company won’t launch a formal roadshow until it is comfortable with the level of demand from cornerstones or anchor investors.

The feedback so far suggests that investors like the asset but that the level of demand will come down to the valuation.

The company has producing mining assets that are already profitable, but its mines are all located in Zambia in Africa, which adds a risk element that investors who normally look at China may not be used to. This is believed to be the first time that major African mining assets will be listed in Hong Kong. CICC, J.P. Morgan and UBS are joint bookrunners.

Yongda Auto
Also pre-marketing at the moment is Yongda Auto, which may raise about $400 million to $500 million. The company is the biggest BMW dealership in China by sales volume and also sells other premium brands like Audi, Jaguar and Land Rover. HSBC and UBS are joint global coordinators and bookrunners. Bocom International has a junior bookrunner role.

Thai AirAsia
And in Thailand, Malaysian budget airline AirAsia is getting ready to spin off its Thai business. The company, Thai AirAsia, is expected to launch the institutional bookbuilding on Monday and is aiming to raise about $240 million, including a private placement of $90 million that will be completed the day after the listing. A private placement alongside an IPO is common practice in Thailand and is a way for the major shareholders to get around paying capital gains tax on their share sale.

The airline is being brought to market by CIMB, Credit Suisse and Thanachart Securities.

The Asian IPO market does typically pick up pace in May and June as issuers are rushing to complete their listings by early July, partly to get the deals done before the summer holidays, partly to be able to use their audited financials for the previous year. In most markets, including Hong Kong, the accounts listed in the prospectus cannot be older than six months.

However, this year the IPO activity has been particularly slow so far, which may put pressure on the banks to get a few deals done by the half-year mark. According to Dealogic, only $12.9 billion worth of IPOs has been completed in Asia ex-Japan year-to-date (including Haitong Securities, which is classified as a “new listing” since it is already listed in Shanghai). That compares with $35.2 billion in 2011 and $38.1 billion in 2010. Excluding deals done in China’s A-share market, there has only been $5.1 billion of new listings so far this year (versus $17.1 billion in 2011 and $15.1 billion in 2010) and aside from Haitong Securities, which raised $1.67 billion from its re-launched Hong Kong share sale in April, no other deal has fetched more than $1 billion.

Encouragingly, Haitong has traded relatively well since its listing on April 27. By day three it closed 8.9% above the IPO price at HK$11.54, but for the past four sessions it has declined with the overall market and yesterday finished at HK$11. This is still 3.8% above the IPO price, however, which is a welcome change from 2011 when the majority of new listings fell in the secondary market. The fact that investors have made some money on Haitong should make them more comfortable to take a look at other IPOs as well.

Meanwhile, some bankers say that the downturn in global equity markets over the past few sessions and the renewed concerns about the eurozone debt crisis is making issuers less inclined to push for aggressive valuations, which should make the upcoming deals somewhat easier to sell. However, if the markets were to continue to trend lower, the current pipeline could turn out to be too much for the market to absorb in just a few weeks. High profile deals like Graff, Formula One and Felda should have no problem attracting investors, but smaller listing candidates could end up suffering if that was to be the case.

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