CK gives life to a gem

The flotation of CK Life will price at the top end of its indicative range today after predictably overwhelming demand from Li Ka-Shing''s legion of devoted retail supporters.

In what will mark the second largest listing on Hong Kong's GEM market, a 1.307 billion IPO for CK Life will formally price later today (Thursday) at HK$2 per share. Raising HK$2.6 billion ($336 million), the deal now stands behind SUNeVision, the IT arm of the Sun Hung Kai group, as the largest flotation on Hong Kong's second market and will command a market capitalization of $1.53 billion.

Under the lead management of Salomon Smith Barney, investors were offered shares on a range of HK$1.80 to HK$2, with the retail offering for 10% of the deal closing 120 times oversubscribed and the institutional placement for the remaining 90%, 10 times oversubscribed. The latter will increase to 20 times, however, following the institution of clawbacks, which will bump the retail tranche up to 50% of the total.

The success of the offering once again stands testament to the pulling power of one man and while many have pointed out that CK Life did not spark the same frenzied submission of applications as, its predecessor was a far smaller deal. The retail tranche for the internet arm of the Cheung Kong group attracted an oversubscription level of 699 times in March 2000, but only offered 42.8 million shares compared to 130.71 million for the biotech arm of the same group.

In terms of the US dollar amount applied for by retail accounts, the figures are much closer with CK Life attracting $3.5 billion and $8.5 billion. For CK Life, this is the equivalent of $500 for every single Hong Kong resident.

Ironically, the allocation process for CK Life is said to have been far more straightforward than tom because so many more applications were placed through the internet this time round. As one observer says, "At 40% this represents the largest ever number of electronic submissions in Hong Kong. And as the process becomes increasingly scripless it should make life a lot easier for the lead manager and cut down the ridiculous length of time it takes to wade through so many paper applications. It should enable deals to price almost as soon as books close rather than two days later."

In order to ensure that the deal did not attract the same chaotic scenes as some of its forebears, the lead also increased the number of receiving banks from one to three and the number of branches from 10 to 50.

Where the institutional book was concerned, observers report a total of 120 headline accounts and a geographical split of 70% Asia and 30% rest of the world. Most of the Asian accounts were said to be Hong Kong based, with corporate investors accounting for just under 10% of the total. In order to facilitate syndication for what was always going to be a popular deal, the lead is said to have encouraged institutional accounts not to place unfeasibly large orders.

Observers also claim that no institutional orders were lost after potential litigation between CK Life and GP Holdings was blazoned across the press. "The situation had always been fairly explicitly stated in the prospectus," says one.

Alongside Salomon, other syndicate banks numbered BNP Paribas Peregrine, Bank of China International, CLSA, HSBC and ICEA as co-leads with CEF, China Everbright, Core Pacific, FB Gemini, ING Barings, Sun Hung Kai and Worldsec as co-managers.

Listing will take place on July 16 when 22% of the company's share capital will begin to trade subject to the exercise of a 12.5% greenshoe. At this point, Li Ka-shing will own 29.5%, Cheung 44% and CK Life chief scientist Larry Cheung about 6.27%.

In the grey market, the deal has traded up as high as HK$3.5 and bankers say that it will be interesting to watch what happens when the flood gates open next Tuesday. Most dismiss the idea that investors will trade out of CK Life in order to participate in the forthcoming IPO for the Bank of China. "They are two completely different equity stories," one argues. "It should also not be forgotten that 95% of the cheques submitted by retail investors are about to be posted back to them."

Like all good GEM listings, CK Life provided no forecasts and is currently loss making. Founded in 1999, the company has five main business lines all using yeast to create a series of environmentally friendly products. Proceeds will be used to enhance R&D through to 2004 for the five lines which span: 1) eco agricultural products such as fertilizers and animal feed supplements: 2) bioremediation products, which are used to treat biodegradable pollutants; 3) nutraceuticals such as food supplements; 4) dermatologicals such as anti-ageing creams; and 5) pharmaceuticals for the treatment of preventable diseases such as cancer and HIV.