China Flooring Holdings, a leading wood flooring company on the mainland, raised HK$1.1 billion ($142 million) on Friday after pricing its shares at the bottom of an indicated range.
The Guangdong-based company makes and sells retail flooring products in China. It owns the biggest wood flooring brand in China and, according to bankers on the deal, investors expect it to benefit from the country’s booming consumer sector. On the other hand, pessimists fear the flooring maker could also be dragged down by the nation’s overheated housing market.
The offering was covered multiple times by around 50 international investors, which consisted of long-only, hedge funds and high-net-worth individuals. Most of the orders came from Asia, with some demand from the US. The deal’s Hong Kong public offering was more than seven times subscribed.
China Flooring kicked off bookbuilding on May 11 and the books were covered on the first day of the roadshow.
The company sold 373 million shares at HK$2.95 each, the low end of an indicated range that went up to HK$4.20. Based on the company’s 2011 forecast earnings, the final price translated into a price-to-earnings (P/E) multiple of 10.8 times.
China Flooring is the first home-improvement player to list in Hong Kong and there are no existing stocks that provide a direct comparison.
The offering accounted for 25% of the company’s enlarged share capital. About 90% of the offering was earmarked for institutional investors and the remaining 10% went to Hong Kong public investors.
The deal comes with a standard 15% greenshoe option, which, if fully exercised, will allow the company to raise up to HK$1.27 billion through an additional 55.95 million shares.
China Flooring made a net profit of Rmb340.1 million ($51 million) in 2010, up by 132% from Rmb146 million in 2008. It claimed in its IPO prospectus that 71% of China’s floorspace was uncovered in 2009, which works out at 55.3 billion square metres, and that figure will shrink to 65.9% by 2014, thanks to rising disposable incomes and living standards.
However, soaring timber prices, power shortages and restrictions imposed by increasingly stringent environmental regulations, which are not uncommon in China, could affect the company’s business, it said.
As of the end of 2009, China’s wood flooring market was the world’s largest in terms of both retail sales volume and value. China’s wood flooring market is primarily driven by retail customers, with 90% of sales coming through retail stores in 2009.
China Flooring will list its shares on the Hong Kong stock exchange on May 26. HSBC, Morgan Stanley and Standard Chartered Bank were the bookrunners of the deal.