Comfortable oversubscription and a large number of orders in the institutional tranche prompted BYD to price at a premium to the H-share average on Friday.
With BNP Paribas Peregrine as lead manager, the company raised HK$1.42 billion ($182.5 million) from the sale of 130 million shares at HK$10.95 per share. This fell just above the mid-point of a HK$9.45 to HK$12.20 indicative range and represented a P/E multiple of 10.78 times 2002 earnings on a fully diluted basis.
At this level, BYD was able to secure a premium to both its nearest listed comparable, Chinese battery manufacturer Coslight, which is currently trading at 7.2 times and to the seven to eight times H-share average.
It was able to do so because international books closed just over seven times subscribed, with participation from well over 200 accounts. By contrast, Hong Kong retail investors were less enthusiastic, with volatile markets and the disappointing debuts of CK Life and Bank of China muting participation to 2.5 times books.
Allocations were split 90% institutional, 10% retail. For the overall deal including retail there was a geographic split, which saw 40% placed in Hong Kong, 25% in Europe, 25% in the US and 10% in Singapore.
The deal represented 25% of the company's share capital and numbered four co-lead managers -BOCI, CICC, CLSA and ICEA. There were also seven co-managers in the international tranche comprising CEF, Celestial, China Everbright, Core Pacific-Yamaichi, Guotai Junan, Nomura and Tai Fook.
BYD is a P-chip and was founded seven-years ago in Shenzhen. Since then it has become the world's second, third and fourth largest manufacturer of respectively, nickel-cadmium batteries, nickel-metal batteries and lithium-ion batteries (Li-ion). It has been able to build market share at the expense of its Japanese competitors largely because the semi-automated nature of its plants means that it has been able to undercut everyone else's pricing.
"BYD has about 16,000 girls sitting there hammering cells together," says one observer. "This is still cheaper than doing everything by machine as the Japanese do."
About 70% of the company's production is exported and its Li-ion batteries are achieving a gross profit margin of 46%. These re-chargeable batteries, which are used in appliances such as mobile phones and electric toys, accounted for 43% of sales during 2001.
Lead manager BNPPP estimates that net profit should double over the course of 2002 to $314 million. The majority of proceeds will be used to re-pay short-term debt and expand production of Li-ion batteries.