ChinaÆs leading down jacket designer Bosideng International set the price at HK$3.98 for a total deal size of HK$6.52 billion ($836 million) and the countryÆs second largest nickel producer, Xinjiang Xinxin Mining Industry, fixed its price at HK$6.50 to raise HK$3.9 billion ($500 million).
If their 15% greenshoes are exercised in full, the size of the two deals could increase to $960 million and $575 million, respectively.
Both deals received solid demand from investors, but perhaps a bit surprisingly it was the mining company that attracted the strongest interest from retail investors in spite of the fact that retail plays and property stocks are typically the most popular with the local public. The fact that other Hong Kong-listed mining stocks have been among the top performers in the rally since mid-August likely played a roll here. Before the correction that has kicked in over the past two days, Aluminum Corp of China (Chalco) had gained 105% since August 17 and Hunan Non-Ferrous Metals had added 98%.
Xinjiang Xinxin was offered at a significant valuation discount versus the other non-ferrous metal producers.
The retail demand for both Xinjiang Xinxin and Bosideng would have been relatively unaffected by the current correction as both companies closed their retail tranches at noon on Wednesday when the Hang Seng Index had only just started to succumb to the selling pressures. The index eventually fell close to 1,400 points from its intraday high to end down 720 points, or 2.6%, on that day. Over the past two sessions it has lost a total of 4.3%.
If the correction continues, it could potentially have an impact on the trading debuts of the two newcomers, however. Bosideng, which is brought to market by Morgan Stanley and Goldman Sachs, is scheduled to start trading on October 11 with Xinjiang Xinxin set to follow a day later. BOC International was the sole bookrunner for the nickel producerÆs IPO.
Bosideng, which dominates its industry with a 36% market share and is in the process of leveraging its three most successful brands to expand its down apparel portfolio, attracted more than $45 billion worth of orders from about 400 institutional investors, sources say. This left the portion of the deal available to these investors more than 120 times covered.
This portion excludes the 40% of the total deal that went to retail investors and the $125 million cornerstone tranche. As indicated by the fact that retail investors didnÆt walk off with half the deal, the retail subscription ratio didnÆt exceed the 100 times that would have been needed to trigger a full clawback. Rather it stopped at about 69 times, which resulted in an increase of the retail tranche to 40% from 10%
Observers say the competition for margin financing with seven IPOs of size in the market at the same time may have had an impact. The greater seasonality of BosidengÆs business compared with the other Hong Kong-listed retail companies (down jackets are more difficult to sell year round than shoes or sportswear) may also have made investors a bit more cautious.
However, sources familiar with the company noted during the roadshow that the sale of down jackets actually has a higher correlation with disposable income than the weather. And the correlation with weather is even lower in countries that have a low penetration rate such as China, where only one in 10 people own a down jacket.
According to sources, Xinjiang XinxinÆs retail tranche ended up more than 450 times covered, which suggests it attracted at least HK$175 billion worth of cash orders û or more than three times the HK$55 billion that retail investors committed to BosidengÆs offering. This triggered a full clawback that increased the size of the retail tranche to 50% from 10%.
After adjusting for this, the institutional portion of the deal was about 180 times covered, they say. About 450 investors, including China funds and private banking-type investors, came into the book. The company also sold $80 million worth of shares, or 16% of the deal, to six cornerstone investors.
A key reason why investors would have bought into the stock is the company's good growth potential as demand for nickel from China's stainless steel industry continues to increase. This is especially true now that nickel prices have stablised and appear to be heading higher again after they more than halved in the three months to mid-August.
Overall, Xinjiang Xinxin, which is ultimately controlled by the State-owned Asset Supervision and Administration Commission (SASAC) of the Xinjiang Uygur Autonomous Region, sold 600 million new H shares or 28.3% of its enlarged share capital. The indicative price was HK$4.80 to HK$6.50.
The final price values the company at 16.8 times its projected 2007 earnings, which compares with 23 times for Chalco, 37 times for Hunan Non-Ferrous and 34 times for China Molybdenum. Xinjiang Xinxin is much smaller than the latter two, both in terms of reserves and resources and turnover and profits, but expectations are that it will be following on the path of the other two and be able to grow quickly through acquisitions and further asset injections from its parent once it is listed.
Bosideng sold 25% of the company, or 1.988 billion shares, of which 94.1% were new. The rest were sold by HSBC Private Equity and resulted in its stake being reduced to 7.8% (pre-shoe) from 12.2% before the IPO. The initial price range was HK$2.56 to HK$3.98.
The top-end pricing values the company at 21 times its 2008 earnings, which is significantly below the valuations of some of the other branded domestic retailers that are listed in Hong Kong. Among the stocks referred to by syndicate analysts as the closest comparables, shoe manufacturer and retailer Belle International trades at about 38 times while sportswear retailers Li Ning and Anta Sports Products are quoted at multiples of 43 times and 30 times, respectively.
Bosideng was also priced at a slight discount to China Dongxiang, which owns the Kappa brand in China. The latter closed its $702 million IPO a day earlier than Bosideng and fixed the price at the top end of the range for a 2008 P/E multiple of 24 times.
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