Chinese oil company turns to Hong Kong for capital

After shelving a $96 million New York IPO in May, Chinese upstream oil company MIE is looking to raise $184 million from a new share sale in Hong Kong.

Hong Kong's robust primary market, which has seen IPO funds exceed $49 billion so far this year and remains active despite the recent global jitters, is helping the local bourse to snatch listing hopefuls as well as companies listed on other global stock exchanges.

The latest company to change its plans and opt for Hong Kong is MIE Holdings Corporation, which shelved an already downsized share sale in New York in May this year as it couldn’t reach an agreement with investors on the offering price. The Chinese upstream oil company is now looking to raise HK$1.125 billion to HK$1.43 billion ($145 million to $184 million) from a Hong Kong IPO to fund the expansion of its oil production.

This comes after two Chinese medical companies have joined Hong Kong Exchanges and Clearing (HKEx) in recent months after delisting from other bourses, attracted by the higher valuations and greater liquidity on offer in the city.

Sihuan Pharmaceutical, a Chinese manufacturer of cardio-cerebral vascular drugs which delisted from Singapore Exchange (SGX) last year, raised $741 million in a popular Hong Kong IPO in October, while China Medical System, a pharmaceutical product marketing group, abandoned its listing on London’s Alternative Investment Market (AIM) in September and raised $129 million in a Hong Kong IPO the same month.

In August, West China Cement transferred its listing from AIM to Hong Kong and the company’s chairman complained to Hong Kong reporters that “the British don’t understand China and our shares have been severely undervalued”.

MIE kicked off the institutional bookbuilding on Monday and is offering 662 million shares at a price between HK$1.70 and HK$2.16. The price range translates into a price-to-earnings (P/E) ratio of 7.47 to 9.49 times, based on the company’s 2011 forecast earnings.

The offer consists of 66.7% primary shares 33.3% secondary shares, and about 90% is targeted at institutional investors. The remaining 10% has been earmarked for Hong Kong retail investors, although the final allocation split is subject to standard clawback triggers. The deal size could stretch to $212 million if a 15% greenshoe option is fully exercised.

MIE has secured two cornerstone investors who will take up a combined $30 million. Atlantis Investment Management, an independent investment firm, has agreed to subscribe to $20 million worth of shares, and China Huadian Capital, a wholly owned subsidiary of China Huadian Group, will invest $10 million.

The company plans to use 55% of the net proceeds to expand operations by acquiring interests in other oil fields or by participating in joint ventures. Some 35% will be used to drill new wells in its three existing oilfields and for the development of advanced technologies for drilling and operating wells under low permeability conditions, the company said.

The shares will be priced on December 7 and the listing is scheduled for December 14. BOC International, Deutsche Bank and J.P. Morgan are handling the deal.

Encouraged by the company’s US-based shareholders, MIE initially decided to float its shares in the US, and was looking to raise between $207 million and $243 million ahead of a listing on the New York Stock Exchange in May. However, it reduced the deal size to $84 million to $96 million amid lukewarm market response and generally poor sentiment for new listings at the time.

It cut the initial price range by about 40% to between $7 and $8 per American depositary share (ADS) from $11.50 and $13.50 initially. The number of American depositary shares (ADS) on offer was also reduced to 12 million from 18 million.

But, even after the size reduction, the deal failed to take off, and after extending the offering period by three days, MIE said it had decided to scrap the offering. Sources said the company and its investors couldn’t reach an agreement on valuation. Bank of America Merrill Lynch and J.P. Morgan were joint bookrunners on the US offering.

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