Chinese IPOs

China Moly seeks $579 million from Shanghai IPO

Five years after its overwhelmingly popular IPO in Hong Kong, China Molybdenum is seeking to raise around $579 million from a new share sale in Shanghai.

The race to list in Shanghai shows no signs of slowing, despite growing worries that the wobbly housing market and deteriorating credit quality of domestic lenders could stall China’s economic growth.

China Molybdenum, which listed in Hong Kong in 2007, is seeking to raise around Rmb3.65 billion ($579 million) from a Shanghai IPO to fund its new alloy project and boost output, according to a statement to the China Securities Regulatory Commission (CSRC).

If successful, the company will become the second molybdenum producer to list in Shanghai after Jinduicheng Molybdenum, which raised $2 billion when it went public in the city in 2008.

Two domestic drug-store chains, LBX Pharmacy and Yifeng Pharmacy, are also waiting for the regulator’s permission for a listing in Shanghai and Shenzhen, respectively.

Market conditions in China are not ideal for new share sales at the moment, but rare metals and drug stores are both in industries that are likely to receive plenty of strategic support from the Chinese government, which hopes to meet the country’s growing demand for minor metals and provide better healthcare for its citizens.

China Moly, which is the country’s biggest molybdenum producer by output, said it plans to offer 542 million new shares, or 10% of its enlarged share capital. It will use Rmb1.88 billion of the proceeds for a hard alloy project and the remaining Rmb1.77 billion to expand its molybdenum and tungsten output.

Essence Securities is the lead underwriter, while BOC International is the co-underwriter.

Investors snapped up China Moly’s Hong Kong IPO back in 2007, when the institutional portion was 200 times covered and retail demand exceeded the number of shares on offer by 400 times. It raised HK$7.3 billion ($943 million) after pricing shares at HK$6.80. That was the top end of the indicated range, but the stock nevertheless soared around 60% on the first day of trading.

During 2011, China Moly’s Hong Kong-listed shares dropped 55%, but have rallied 14% so far this year and closed at HK$3.78 yesterday. The stock is currently trading at 14 times its 2012 forecast earnings.

China is the world’s biggest molybdenum producer. The silvery metal is widely used in the production of steel alloys such as aircraft parts and electrical contacts, thanks to its ability to withstand extreme temperatures without significantly expanding or softening.

LBX Pharmacy, which has more than 600 outlets nationwide, is a leading drug store chain in China. It received a total investment of $82 million from a Swedish private equity firm, EQT Partners, in 2008 and planned to go public in the A-share market in 2009.

Shanghai stocks tumbled heavily last week, led by property companies after Premier Wen Jiabao remarked that China’s home prices are “far from reasonable”.

There have been five sizable IPOs in Shanghai so far this year, according to Dealogic. China Communications Construction launched the biggest deal so far this year, raising $794 million, followed by Jishi Media’s $312 million IPO. Universal Scientific Industrial, Shantou Dongfeng Printing and SJEC each raised more than $100 million.

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