Chinese battery maker attracts strong demand for IPO

The institutional tranche is more than 26 times covered, while the Hong Kong public offering is around 260 times subscribed, triggering a full clawback.

Leoch International Technology, a Chinese lead-acid battery producer, has raised HK$1.78 billion ($230 million) from yet another popular initial public offering in Hong Kong.

Market demand for the battery manufacturer was very strong and bankers involved in the deal said they were surprised to see retail investors so enthusiastic to share a slice of China’s battery business.

Despite a relatively modest deal size, the Hong Kong public offering was around 260 times subscribed, while the institutional tranche was more than 26 times covered. The hefty retail subscription triggered a full clawback that increased the size of the retail tranche to 50% from 10% originally.

Full allocation clawbacks have been commonplace in recent Hong Kong IPOs. Chinese menswear brand Evergreen International, which raised $140 million from a new share sale, had a full clawback after retail investors ordered 1,231 times as many shares as had been set aside for them. Sihuan Pharmaceutical, a Chinese drug producer, made the same allocation adjustment after the retail tranche of its $741 million IPO was more than 400 times covered. There was also a full clawback for the $154 million IPO of Boer Power, a Chinese electrical distribution systems and solutions provider, after its retail tranche was 341 times subscribed.

All three companies priced their shares at the top end of the indicated price range, helped by the strong market response.

Shenzhen-based Leoch sold 25% of its enlarged share capital, or 333.33 million new shares, at HK$5.35 apiece, the top end of an indicated range starting from HK$3.75. Based on the company’s 2011 forecast earnings, the final price represents a price-to-earnings ratio of 13.1 times.

About 180 institutional accounts, which consisted of a mixed group of investors, including long-only funds, hedge funds, private banks and high-net-worth individuals, participated in the deal, according to sources.

Investors are interested in the company because it is one of the largest lead-acid battery makers in China in terms of export revenue and has its own research and development facilities, one source said.

Based on export revenues in 2009, Leoch has a 5.8% market share in China. It makes more than 1,500 different types of batteries, including reserve-power, starting, lighting and ignition types, which are used in telecommunication systems, automobiles, motorcycles, renewable energy storage systems, and other consumer and industrial products, the company said in a preliminary IPO prospectus.

Leoch made $21.7 million in net profit in 2009 and $18 million in the six months ended June 30, 2010. The shares are scheduled to start trading on November 16. BOC International and Citi are joint bookrunners of the deal.

Consumption and pharmaceutical plays have been popular bets among Hong Kong IPOs in the past two months, and there will be more consumption-related IPOs coming in the next few weeks, market watchers say.

In the first 10 months of 2010, a total of $345.94 billion was raised by IPOs in Hong Kong. That represents an increase of 222% from $107.46 billion in the same period last year. The funds raised in the first 10 months has also already overtaken the past IPO record from 2006 when $333.85 billion was raised from new listings, according to statistics from the Hong Kong Exchanges and Clearing.

There were 78 new listings in the first 10 months of 2010, an increase of 77% from 44 in the same period last year, the exchange statistics show.

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