China Vanadium Titano-Magnetite Mining has priced its initial public offering just above the mid-point of the offering range at HK$3.50 for a total deal size of HK$2.06 billion ($266 million). The shares were offered in a range between HK$3.12 and HK$3.86.
The deal attracted just over 100 institutional investors and a pretty good retail following, which should come as a relief for other listing candidates at a time when the secondary market has taken on a more negative tone -- the Hang Seng Index has fallen in six of the past eight sessions -- and the last few newcomers have fallen on their debuts.
Peak Sport Products dropped 17% on its first day of trading yesterday and Metallurgical Corp of China's H shares, which fell 11.7% in their debut last Thursday, lost another 1.3%, which left the share price 16.2% below the IPO price. The losses were all the more disappointing as they came despite a 2.6% gain in the Hang Seng Index. In the US, Chinese online gaming company Shanda Games lost 14% when it started trading last Friday.
These disappointing results have made investors a bit more cautious about committing money to other IPOs and bankers say the recent deals have seen a few more limit orders than the deals that priced earlier in the month. The final pricings have also started to creep off the top of the indicated ranges as companies are keen to avoid a similarly poor aftermarket performance.
And in one of the clearest signs yet that companies -- and bankers -- feel the market has become less sure-fire, Wilmar China yesterday chose to delay its Hong Kong IPO, which was scheduled to kick-off next Monday. The company is a spin-off of Singapore-listed palm oil producer Wilmar International and is involved in oilseed crushing, edible oil refining and the production of edible oils, feed meal, oleochemicals and specialty fats in China. It was expected to be the largest Hong Kong IPO year-to-date at about $3 billion to $4 billion. It has attracted a lot of interest both because of its well-known parent and its leading market position and strong cashflows.
The company has been pre-marketing for a couple of weeks but will hold off on launching the actual deal until the markets become more stable, according to a source. This could happen as early as mid-October, or later -- there is no need to rush, the source said. An official announcement from the company said: "Wilmar China is assessing market conditions and other considerations relevant to the evaluation of its Hong Kong IPO. The actual timing of its IPO will be dependent on conditions which are deemed to be in the best interest of the company."
A banker not involved in the Wilmar offering said the delay may be a smart move if the company doesn't need the money at this particular point. The withdrawal of that large a deal may also be helpful for other listing candidates as the competition for investor attention just got a little less intense. Wilmar China's offering is led by BOC International, Goldman Sachs and Morgan Stanley.
China Vanadium, an iron ore producer based in Sichuan province, was said to have been about 17 times covered overall. Retail investors subscribed for more about 40 times the number of shares earmarked for them, triggering a partial clawback that increased the size of the retail tranche to 30% of the total deal from the initial 10%. Citi and Deutsche Bank were the joint bookrunners.
The institutional demand came predominantly from Asia. European investors contributed about 10% of the order amount and US investors another 5%.
A source said there weren't many limit orders in the book, but the company had been keen not to price too high as a good trading debut and a quality order book was more important to it than the amount of proceeds.
The company sold 25% of its share capital in the form of 588.8 million shares. Some 84.9% of the shares are new, while 15.1% are secondary. The same split also applies to the 15% overallotment option, which, if exercised, could increase the total deal size to $306 million.
The final price values the company at 11.5 times its projected 2010 earnings on a fully-diluted, pre-shoe basis, based on the bookrunners' consensus. Hidili Industry, a Hong Kong-listed producer of coke and coking coal was viewed as the closest comparable on the basis that coking coal is the other key raw material used to produce steel. It is also of a similar size to China Vanadium, is based in the Sichuan province, has a strong organic growth profile and is viewed as a consolidator in its industry. Hidili yesterday closed at a P/E multiple of 12.5 times after falling 8.5% since China Vanadium started its roadshow last Monday.
The recent selling pressure on Hidili may have contributed to the decision to fix China Vanadium's IPO price at mid-range since a higher price would have resulted in little or no discount. At the beginning of China Vanadium's roadshow, Hidili was trading at a 2010 P/E multiple of 15-16 times.
China Vanadium owns majority stakes in two mines with 78.66 million tonnes of proven and probable reserves based on the Joint Ore Reserves Committee (JORC) code. It plans to complete an expansion of its existing assets by adding a 300,000 tonnes per annum production line and also has an option to acquire another five mines in the area with estimated resources of 126.2 million tonnes. Longer-term, the company is likely to be one of the main consolidators in the industry, sources say.
Being based in Sichuan means the company is able to take advantage of strong demand for iron and steel due to the reconstruction work in the wake of last year's earthquake. The government has also issued a policy that encourages the use of steel strengthened by vanadium for construction in earthquake zones, which is extremely positive for China Vanadium since its iron ore is naturally rich on vanadium and doesn't need to be artificially strengthened.
The company is due to start trading on October 8.