Dynasty Fine Wines has got the Hong Kong IPO market off to a good start this year, raising HK$675 million ($86.5 million) via lead manager ABN AMRO Rothschild on Friday. A 300 million new share deal was priced at HK$2.25, the top of a HK$1.75 to HK$2.25 indicative range.
Pre-greenshoe, the deal represents 25% of the enlarged share capital and has been priced at 15.2 times 2005 earnings (fully diluted). The institutional tranche closed 80 times covered and the retail tranche a massive 625 times covered, prompting full clawbacks to 50% of the deal.
Of the 135 institutional investors who applied for shares, around 30 applied for 10% or more of the deal. However, such strong retail interest meant that average allocations were just 1% to 1.5% of the deal. No single investor acquired 10% or more of the deal.
There are as yet no other wine makers listed in Hong Kong, so the main comparables were Mainland brewers such as Tsingdao Brewery, and soft drinks manufacturers. These trade in a range of 16 - 25 times earnings, say specialists.
"Given the brand name of Dynasty in China we believe the counter will hit at the least the mid-way point of that range," says one specialist, arguing the company had left sufficient money on the table to attract investors.
Specialists believe the main attraction of the stock is the China consumer story allied to wine's low but growing consumption rate on the mainland. Wine consumption is currently estimated to total just 1% of the alcoholic drinks market.
However, for health reasons the government is pushing wine over hard liqueur. Wine is also emerging as a popular drink among the Westernized portion of China's white collar class. However, Western wines tend to sell at a considerable premium to local brands - double the cost in the case of an average bottle of French wine.
The completion of the IPO may inject some momentum back to the Hong Kong equities market, which has performed poorly so far this year, with the benchmark Hang Seng index down 4%.
Dynasty Fine Wines is a 25-year old joint venture between Remy Cointreau and Tianjin Development. Post IPO, Remy will see its shareholding diluted down to 24.75% while Tianjin Development will see its stake drop 46.5%. Pre-IPO, the proportions were around 36% and 64% respectively.
Analysts say the company is currently the second biggest wine group on the Mainland behind the Changyu group. About 94% of its turnover derives from red wine sales.