Chinese machinery makers seek $5 billion from Hong Kong listings

Two Chinese machinery makers are going ahead with their Hong Kong listing plans despite lingering concerns over the current volatile market.

Sany Heavy Industry and its domestic rival XCMG Construction Machinery, both listed on the A-share market, are seeking a Hong Kong listing in the coming two months. Sany has filed a listing application to the Hong Kong stock exchange for an initial public offering of up to $3 billion, while XCMG is aiming to raise up to $2 billion, according to sources.

The two deals, along with the Citic Securities’ estimated $3 billion IPO and New China Life’s $4 billion offering, which are also scheduled to take place in the coming two months, will absorb more than $10 billion of liquidity in Hong Kong’s capital market.

There are concerns that by coming to the market at the same time, the two companies will stretch investors’ appetite, especially as there are already many machinery stocks in Hong Kong for investors to choose from.

There are currently 23 industrial machinery companies listed in Hong Kong. The biggest debut to date came from Shanghai Electric, which raised $648 million from its IPO in 2005, according to data from Dealogic. Last February, International Mining Machinery, a Chinese maker of mining equipment, raised $327 million from its IPO in the city.

Sany Heavy Industry had said last year that it was planning a Hong Kong listing. The company makes engineering machinery for construction use and is the Shanghai-listed arm of Sany Group.

Sany Heavy Equipment International, another group company, which makes coal mining equipment, is also listed in Hong Kong. It raised $309 million from a share sale arranged by HSBC and Standard Chartered in 2009.

Sany Heavy Industry has hired BoA Merrill Lynch, Citi and Citic Securities to manage the transaction.

XCMG, which makes construction machinery, is said to be targeting up to $2 billion in an offering arranged by BNP Paribas, CICC, Credit Suisse, HSBC, Macquarie and Morgan Stanley.

Sany Heavy Industry, which is based in central China’s Hunan province, posted a net profit of Rmb5.9 billion ($899 million) for the first half of 2011, which was a 106% jump year-on-year, according to a filing to the Shanghai stock exchange.

The company said the significant increase in revenue in the first half was due to the higher domestic demand for construction machinery from the building of affordable housing infrastructure.

XCMG was founded in 1989 in East China’s Jiangsu province and is now the leading player in the country’s construction machinery industry, and is among the top 10 in the world. Its products are sold to Japan, South Korea, Southeast Asia, US and Europe, the group said on its company website. XCMG reported a growth of 61% year-on-year in net profit for the first half of this year.