Hong Kong-listed Dalian Port, one of the largest port operators in China, is looking to raise between Rmb5.4 billion and Rmb6 billion ($813 million to $903 million) from a Shanghai initial public offering.
If successful, it will be the third port IPO in Shanghai this year. However, the two port operators that went public before Dalian -- Ningbo Port and Tangshan Port -- both received a lukewarm response and are struggling to stay above their IPO prices amid a weak market and worries about China’s monetary policy tightening.
Observers think China's domestic A-share market will remain volatile. “China will need to raise interest rates three to four times in the coming quarters to fight soaring inflation and to turn the negative real interest rate to above zero again,” Jung Ulrich, managing director and chairman of China equities and commodities at J.P. Morgan, said yesterday.
She thinks Beijing may also increase the reserve requirement ratio (RRR) for banks in order to meet its loan target of Rmb7.5 trillion this year, although after several increases already this year, there isn't much room to lift the RRR further.
Determined to list in Shanghai and prepared for a potentially disappointing market, Dalian Port has cut its offering size by 37.5% to 1.5 billion primary shares from an original plan to sell 2.4 billion shares. The shares on offer account for 33.9% of the enlarged share capital.
The company is also offering its shares at a much lower valuation than the previous two port issuers. The indicated price range of Rmb3.60 to Rmb4.00 pitches the company at 21 times to 23 times its 2010 forecast earnings.
That is higher than Dalian Port's Hong Kong-listed shares, which based on yesterday's close of HK$3.41 are currently quoted at 14 times. However, it is well below the 29.3 times and 32.7 times that Ningbo Port and Tangshan Port achieved in their respective IPOs.
Ningbo Port, which listed in September, also cut the size of its IPO by 20% from the original target due to the volatile A-share market. It sold 2 billion new shares, down from an earlier plan to offer 2.5 billion shares, at Rmb3.70 apiece for a total deal size of Rmb7.4 billion.
Ningbo Port's shares fell 4% in their first trading day in late September and, while they reached a closing high of Rmb4.18 a month ago, the price dropped below the IPO price again yesterday for a close of Rmb3.57.
Tangshan Port also fell 4% in its trading debut after raising Rmb1.6 billion from a Shanghai IPO in July. The stock has traded below the issue price most of the time since listing, but for the last few days has hovered around the IPO price. It closed at Rmb8.22 yesterday, slightly above its IPO price of Rmb8.20.
Dalian Port has prepared approximately 779 million shares for institutional investors and 798 million shares for retail investors. The final price will be set on November 25 and the expected listing date is November 29, the company said in a statement to the Shanghai Stock Exchange (SSE). Citic Securities is the bookrunner of the deal.
In the same statement, Dalian Port said it will use the proceeds to acquire assets owned by its controlling shareholder Dalian Port Corp, including terminals involved in ore, bulk grain, cargo and passenger-related businesses.
The north China port operator runs the biggest crude oil terminal in the country. In 2006, it raised $279 million through a very popular IPO in Hong Kong, which was 850 times covered by retail investors. Its shares jumped 68% in the trading debut and are currently trading 32% above the IPO price after gaining 23% from a 2010 low of HK$2.77 in July.