Deals falter as investors show prejudice

Xiashun cancels its IPO, while casino operator A-Max relaunches its placement after cutting the size by one-third.
Aluminium foil producer Xiashun Holdings has decided to delay its initial public offering due to difficult market conditions only two days before it was due to kick off the retail portion of the deal, a source said yesterday.

The company, which was aiming to raise up to HK$2.13 billion ($273 million), is the first listing candidate in Hong Kong to call off an IPO during the roadshow since printed circuit board manufacturer 3Cems Corp pulled its $90 million IPO in December last year after a lawsuit was filed against one of its subsidiaries. XiashunÆs move is further evidence that investors are becoming more selective.

Separately, casino operator A-Max Holdings has reduced the size of its planned HK$3 billion placement to HK$2 billion ($257 million) after failing to attract enough demand by the time the books closed in the early hours of Friday morning. The deal was re-launched at the new size yesterday and was due to stay open until 5pm New York time.

At the same time, China Railway Group attracted about $58 billion worth of orders from institutional investors and $52 billion from retail investors for the H-share portion of its combined A- and H-share IPO, which closed last Friday. And according to sources, BYD ElectronicÆs up to $990 million offering and Uni-President ChinaÆs up to $530 million deal, which are both currently in the market, are also generating a lot of interest, suggesting that investors are choosing to focus on the larger deals.

ôThe market is still okay for the large issuers, but people donÆt want to do a lot of work on what seems like marginal deals at the moment,ö one banker says. ôWhat we have is a tough market tied up with going into year end, so why take the risk?ö

Investors donÆt want to buy into an IPO that trades down on the debut and leaves them with a loss-making position on their books as they sum up the year. This is particularly true for the hedge funds. There are long-only funds, however, that still have money to invest and they tend to focus on the larger, more liquid, issues.

Until a couple of weeks ago, the Hong Kong IPO market had held up well despite the volatility in the secondary market and a couple of pulled deals and weak first-day performances in Singapore.

The disappointing trading debuts by Sinotrans Shipping and heavy-duty truck maker Sinotruk changed all that and the current perception among market watchers is that new issues that arenÆt offered at attractive valuations will struggle. Somewhat ironically, the Hang Seng Index finished higher for the fourth straight day yesterday, reaching a two-week high of 28,658 points. However, yesterdayÆs gain stopped at 14.8 points and the index closed at its day low after giving up a 1.7% gain earlier in the day, offering clear evidence that the volatility continues.

According to the source, Xiashun elected to withdraw its offering because it felt it would not be able to achieve the pricing that it desired. The company, which makes aluminium foil that is used in sterile packaging for drinks, liquid foods and tobacco, had been on the road marketing its deal to institutional investors for four days when the decision was made. It had already set a wide price range û presumably to allow for maximum flexibility should the market turn.

It was offering 500 million new shares, or approximately 25% of the company, at a price of HK$3.10 to HK$4.25 apiece. JPMorgan and UBS were the joint bookrunners.

While the company told investors that the IPO was ôdelayedö, it would be impossible for the deal to return to the market before year end and that means Xiashun will have to update its listing documents with the full-year results before being able to have another go at becoming a publicly traded company.

Meanwhile, A-Max chose a different route by downsizing its offering. Before re-launching the deal yesterday, the company also renegotiated its earlier agreement with the Crown Macau casino to ensure that the HK$1 billion reduction wonÆt hamper its planned business. Essentially, the Crown will now pay the A-Max-linked junket operators who bring VIP clients to its casino on a daily basis rather than once a month. This will reduce the need for working capital by about HK$1 billion, the source says.

The money raised by A-Max will be lent to a company called Ace High which in turn will provide it to junket operator AMA. AMA will use it to provide daily liquidity to nine collaborators that have agreed to bring their high-roller VIP clients exclusively to the Crown Macau casino. The Crown is owned and operated by Melco PBL Entertainment (Macau), which holds one of MacauÆs six gaming licenses or sub-licences.

A-Max, which is currently involved in the Macau gaming business through its 49.9% stake in the mass-market focused Greek Mythology casino, will gain a 99.99% stake in ACE by capitalising HK$50 million of the loan. This will essentially give it access to 80% of the revenues generated by AMA through a profit transfer agreement.

This will be A-MaxÆs first move into the junket part of the Macau gaming market, but through the agreement between AMA and the Crown, it will capture a more than 40% share of this market virtually overnight. Another indication of the significance of this deal is that even at the reduced size, the money raised from the placement will more than double A-MaxÆs current market cap of about $200 million.

AMA will use the cash from the loan to improve the liquidity of its junket collaborators by paying them daily commissions û effectively allowing them to provide more funding to their high-roller clients who can then spend more at the tables. According to a source, the liquidity could improve by as much as 28%-35%, which is why market watchers have suggested that this deal has the potential of transforming the entire business model for the VIP segment of the Macau gaming sector.

CLSA is the sold bookrunner for the A-Max deal.
¬ Haymarket Media Limited. All rights reserved.
Share our publication on social media
Share our publication on social media