China CNR Corp prices IPO towards bottom

Chinese train manufacturer brings some cheer back to the Hong Kong IPO market following pulled WH Group listing.

China CNR Corp’s 1.82 billion share initial public offering was priced at HK$5.17 per share on Friday, towards the bottom end of its HK$5 to HK$6.20 indicative range.

The Chinese train maker’s pricing was partially dictated by a regulatory requirement to fix the deal at a minimum 10% discount to the group’s A-shares.

However, most of the institutional orders are said to have clustered around this level anyway. A total of 150 accounts participated in the HK$9.4 billion ($1.3 billion) transaction, with the institutional order book closing roughly three-times oversubscribed.

The deal also had three cornerstone investors – Jinxi Axie, a CNR Corp supplier, which took $30 million; plus two state-owned enterprises, Dongfeng Motor on $40 million and the Hong Kong subsidiary of China National Machinery Industry Corp, which took $30 million.

The retail order book closed 80% subscribed meaning no clawback was triggered. There is also a 15% greenshoe.

China CNR Corp’s IPO ranks as Asia’s second largest this year behind Hong Kong Electric’s $3.1 billion offering in mid-January. Year-to-date listing volumes on the Hong Kong Stock Exchange have reached the second highest on record but after-market performance has been poor, leading fund managers to push for cheaper valuations.

In contrast to WH Group, which refused to accept pricing at the bottom end of its indicative range, China CNR appears to have listened to syndicate advice and provided the market with a deal that stands a chance of trading up when it lists.


CSR Corp, its nearest benchmark, is also dual listed and if China CNR Corp can repeat its trading pattern then its H-shares should trade through its A-shares. China CNR’s IPO has been valued at 8.7 times earnings, while its A-shares are trading at 9.65 times, according to Bloomberg.

CSR’s H-shares, on the other hand, are currently valued at 11.83 times forward earnings compared to 11.21 for its A-shares. However, this premium has narrowed over the past month because the H-shares have underperformed the A-shares.

CSR Corp’s A-shares closed Friday pretty much flat to where they were one month ago when China CNR’s IPO began pre-marketing. But the picture has been very different in Hong Kong.

In Hong Kong on Friday, the stock was down 2.09% compared to a fall of just 0.16% for the China Enterprises Index on the same day. Over the past month, CSR Corp has fallen 7%, suggesting either short selling or switching ahead of China CNR’s IPO.

China CNR’s A-shares were up 0.22% on Friday but, like CSR Corp, they are also pretty much flat on where they were one month ago.

CICC, Macquarie and UBS acted as joint-bookrunners for China CNR’s IPO.


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