China Forestry IPO put on hold

After a few days of tentative pre-marketing, plans for a roadshow are felled by international market chaos.
The chance of a second Hong Kong initial public offering in the first part of this month likely disappeared when China Forestry Holdings gave up any immediate plans for a listing after only a few days of soft pre-marketing. The Chinese owner and operator of forestry plantations had been aiming to raise somewhere between $200 million and $250 million.

This leaves Renhe Commercial HoldingsÆ $540 million offering as the only Hong Kong IPO on track for the first half of October. Renhe, which operates underground shopping malls in several Chinese cities, launched its institutional roadshow on Monday and opened its books to retail investors on Tuesday.

One source close to China Forestry blamed market volatility for the decision to halt pre-marketing activities, saying ôthere is more value in the company than could be got in the current marketö. He went on to say that investors are more interested in the daily news coming out of the US than looking into IPO opportunities û the latest shocker being the rejection on Monday of the $700 billion US bailout.

Even the presence of Carlyle as a pre-IPO investor in China Forestry may not have been enough to attract investors in this kind of environment. The US private equity firm has a 12.5% stake in the listing candidate.

ôThereÆs not much of an appetite, even for a great story,ö says one investor. It would have had to price low, he says, to be competitive relative to the secondary market as investors are still more comfortable to pick up shares at a discount after the debut.

Pre-marketing of the deal began on September 23, but joint bookrunners Cazenove and UBS had set no formal timetable from there onwards û a roadshow was only going to be launched if the feedback suggested there was enough demand in the market at this time. One source said the deal may return soon if a window of opportunity opens up.

China Forestry owns 171,780 hectares of forest land in the southwestern provinces of Sichuan and Yunnan and has signed a memorandum of understanding with the Yunnan government to acquire an additional 270,000 hectares. Given its location it is in a perfect position to supply timber to the local earthquake reconstruction, which is expected to increase building spending in the area for three to four years.

The Hong Kong market has had about $8.6 billion worth of IPOs in the first three quarters this year, according to stock exchange data, which is less than half the $20.4 billion that was raised from new listings in the same period last year. And with the ongoing financial turmoil on Wall Street keeping volatility high and investors on the sidelines, the environment for bringing new companies to the market isn't exactly getting any easier. Renhe is the first company to attempt a Hong Kong IPO since China South Locomotive & Rolling StockÆs H-share trading debut on August 21.

However, Hong Kong Exchanges and Clearing said on Tuesday that it received 13 new listing applications in September and approved 14 applications in principle, suggesting companies have by no means given up the idea of an IPO. A total of 29 companies with valid approvals have yet to come to market, while 45 companies have let their approvals lapse without completing an IPO.
¬ Haymarket Media Limited. All rights reserved.
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