Boer Power receives strong demand for Hong Kong IPO

The deal is multiple times covered by institutional investors, while Hong Kong retail investors subscribe to 341 times the shares earmarked for them, according to sources.

Boer Power Holdings, a Chinese electrical distribution systems and solutions provider, has raised HK$1.19 billion ($154 million) from a Hong Kong initial public offering to expand its sales network, construct new production capacity and purchase equipment.

The deal received strong demand from both institutional and retail investors during the offering period, which lasted just over one week (the institutional bookbuilding opened on October 4). The institutional tranche was multiple times covered and the Hong Kong public offering was 341 times subscribed by retail investors, according to sources. 

Boer sold 187.5 million shares, all primary. Initially, 10% of the offering, or 18.75 million shares, were earmarked for retail investors, but the strong demand triggered a full clawback that increased this portion of the deal to 50%.

Retail investors were very interested in the stock even though they don't understand much about the company's businesses, according to Kingston Lin, business development director at OSK Securities.

“The demand was strong, although people don't have the same enthusiasm as they have with retailers because many found Boer's business difficult to understand,” he said.

Prior to launch, the company had also secured two cornerstone investors that agreed to buy a combined $24 million worth of shares with a six-month lockup. At the final price, this means they will take up 15.6% of the deal. The two cornerstones are Hong Kong-based asset manager Value Partners, which bought $18 million worth of shares, and a wholly owned unit of Wasion Group Holdings, a Hong Kong-listed provider of energy measurement equipment and systems, which invested $6 million.

Together with the clawback, the cornerstone tranche reduced the portion of the deal available to other institutional investors to just $76 million, even after including the 15% greenshoe. This could help support the stock in the secondary market if institutions decide to top up their allocations.

Boer was founded in 1985 in the Wuxi province in eastern China and was originally named Wuxi City Power Instrumentation System Works. It specialises in producing high-low-voltage electrical switchgear systems, switch components and electrical network management systems. It also provides technical support and value-added power distribution solutions for customers, according to the company's website.

Boer's electrical distribution system (EDS) helps to distribute power to end users' facilities at suitable voltage and with suitable volume according to the users' specific purposes and functions. The EDS solution has been adopted in many large-scale telecommunication, infrastructure construction, healthcare and industrial projects in China, the company said in a preliminary IPO prospectus.

The shares were offered in a range between HK$4.38 and HK$6.38 apiece, and priced at the top for a 2011 price-to-earnings (P/E) ratio of 16 times. Bankers involved in the deal said there were no other Hong Kong-listed companies to use as a benchmark for the pricing.

The shares are scheduled to start trading on October 20. CCB International was the sole sponsor, and joint global coordinator and bookrunner together with UBS.

Power companies are set to benefit from China's growing demand for energy. China is the second largest electricity consumer in the world, using more than 34 terawatt-hours in 2008. The country's electricity consumption grew 12.1% per year from 2004 to 2008, Boer said in the prospectus.

Different regions in China have different levels of demand for electricity. Out of the six major regions, eastern China uses the largest amount of electricity – approximately 34% of the total in 2008 -- while northeast China consumes the lowest portion, at 8% of the total, the company said.

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