BBMG starts pre-marketing for $700 million IPO

The Beijing producer of construction materials aims to complete the second largest Hong Kong IPO this year.

BBMG Corporation yesterday started pre-marketing for an IPO that is expected to raise around $700 million, said sources close to the deal. Shares in the company are expected to start trading at the end of the month, and if the deal is completed, it will be the second largest IPO in Hong Kong so far this year.

The company is the largest supplier of building materials in Beijing, Tianjin and Hebei province. Its core business is cement; it has a 40% market share in Beijing's overall cement market and a 70% share of the high-grade cement market. On top of cement, it is the second largest commercial concrete producer in Beijing. More than 90% of the buildings constructed for last year's Beijing Olympics used the company's cement.

BBMG also makes the materials used in decorations and fixtures, insulation and refractory products.

The other side of the business is property development. Since 1987, it has developed over five million square meters of gross floor area, and as of June 30, 2008, it had 25 property projects in cities such as Beijing, Hohhot and Hangzhou.

The capital raised from the deal will be used for a variety of purposes. Approximately 75% of the money will be spent on expanding the existing business operations. Most notably it will increase its cement production to 30 million tonnes a year by the end of 2010 from its current capacity of 12 million tonnes. Another 15% will be used to pay off loans and the remainder will be working capital.

The deal's timetable is as follows: The roadshow will launch next Monday with pricing expected on July 22. Trading will start on July 29. The joint bookrunners on the deal are J.P. Morgan, Macquarie and UBS.

Last November, China launched a $585 billion stimulus package with a heavy focus on infrastructure. As a state-owned company exposed to the construction sector, BBMG is expected to be a significant beneficiary of government spending.

Companies in China's building materials sector were the first to see their stocks recover after the financial crisis and they have continued to outperform. Shares in China National Building Materials, for example, are up 52.3% year-to-date, compared to a 20% rise in the Hang Seng Index over the same period. One of the main concerns for potential investors in BBMG will relate to how much of the stimulus package sentiment is already priced into the market.

Due to the weakened capital markets, IPOs the size of BBMG's have been rare this year. The other large deal is China Zhongwang, which raised $1.2 billion dollars in April.

According to PricewaterhouseCoopers, in a report released last week, the rest of the year is set to be a lot busier. While HK$17 billion ($2.1 billion) was raised via IPOs in the first six months of 2009, PwC predicts that by the end of the year, a total of HK$100 billion will be raised.

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