Chinese shipbuilder kicks off $1 billion Singapore IPO

New Century Shipbuilding yesterday kicked off the roadshow for an initial public offering that is aiming to raise between S$1.43 billion and S$1.74 billion ($1.04 billion to $1.27 billion). At that size, this will be the largest IPO in Singapore since CapitaMalls Asia's $1.78 billion float in November last year.

China-based New Century has chosen to list in Singapore, not only because it is a shipping hub that is used by many of its customers, but also because its closest comparable, fellow privately-owned Chinese shipbuilder Yangzijiang Shipbuilding Holdings is also listed there. Ironically though, over the past couple of weeks, as bankers have been busy pre-marketing New Century to investors, speculation has taken hold that Yangzijiang is about to give up its listing in Singapore and seek to re-list in Hong Kong, or even Taiwan, instead. The speculation has sent Yangzijiang's share price sharply higher, which means that the valuation offered by New Century all of a sudden looks generous.

This is particularly true since syndicate analysts argue that New Century is a significantly stronger company both in terms of market positioning and in terms of its earnings and returns. It also has an order book that is almost double the size in terms of deadweight tonnes to that of Yangzijiang. New Century was able to continue to grow its revenues through the financial crisis when global shipping slowed significantly and many ship operators were forced to cancel orders for new vessels. Notably, it saw only one cancellation in 2009.

Part of the reason why it has managed to shake off the crisis so well is that it is focusing on the bulk and tanker segments of the market and isn't involved at all in the building of containerships. The latter was the worst hit by the crisis as the transportation of manufacturing and retail goods around the world declined significantly.

The company is offering 30% of its enlarged share capital in the form of 1.464 billion shares. Of the total, 67% are new while the remainder are secondary shares being sold by the controlling shareholders. The shares are offered between S$0.98 and S$1.19 apiece, which translates into a 2010 price-to-earnings multiple of 7 to 8.5 times. Yangzijiang currently trades at a 2010 P/E multiple of about 12.4 times.

The IPO, which is being arranged by Morgan Stanley and UBS, with DBS helping to coordinate the retail tranche, will remain open until May 4. The final price will be determined after the US close that day and the trading debut is currently scheduled for May 11.