However, observers say the fact that the offering was covered was encouraging and given that it was the issuer that chose to walk away, any negative sentiment arising from the cancellation shouldnÆt be that long-lived.
In a more positive development, fashion accessory and jewellery designer Artini China was able to complete its Cazenove-led IPO yesterday and will be listing in Hong Kong on May 16. Like on the majority of the recent block trades, the demand was price sensitive, and the final price was set at the bottom of the offering range for a total deal size of HK$621.6 million ($80 million).
Both Artini and E-land failed to fill their respective retail offers, with the former about half covered. E-LandÆs retail portion, which accounted for 10% of the total deal, was just under 40% subscribed, sources say. In both cases there was enough excess demand for the institutional tranches that there was û or would have been û no problem to have institutional investors take up the left-over shares.
E-Land, which is ChinaÆs fifth largest womenÆs apparel company, was looking to raise between $242 million and $369 million by selling 25% of its shares. The money from the IPO, which was arranged by Citi, Goldman Sachs and UBS, was to be used in part to open 1,200 new department store concessions over the next three to four years that would more than double its current retail network of close to 1,100 concessions.
Ironically it seems it was the improvement in the Hong Kong market during the roadshow that may have caused the deal to be postponed, as it meant the valuation gap between E-land and some of its closest comparables widened further. And, according to sources, the E-Land management wasnÆt willing to accept a discount of that size.
ôIt seems the company had different price expectations and felt the recent improvement in the market should have benefitted it as well, but investors were very clear that they didnÆt want to pay more (than the bottom-end),ö says one source close to the deal.
As of last night, the company had yet to issue a statement, but a brief e-mail sent out to investors by the bookrunners noted that: ôThe company has decided not to accept a deal that was covered and allocable. Therefore, the IPO has been postponed until further notice.ö The statement suggests the company believes it may be able to achieve a higher valuation if it comes back another time, but that will hinge on a significant improvement in the market û something which many analysts say is still highly uncertain. Department store operator Maoye International Holdings, which returned to the market in April after pulling its first listing attempt in January, ended up raising only $343 million, or half the $697 million it could have raised at the bottom end of the range the first time around. Part of that was due to a drop in sector valuations.
When E-LandÆs institutional bookbuilding closed in the early hours of Thursday morning Hong Kong time, fashion designer Ports Design was trading at a 2008 price-to-earnings multiple of 26.2 times, up from 25.7 times at the beginning of E-LandÆs roadshow and about 23 times when the bookrunners launched the investor education. The valuation of shoe manufacturer and retailer Belle International had crept up to about 28.1 times this yearÆs earnings from just under 26 times at the beginning of the roadshow.
E-Land was offered at a price between HK$3.80 and HK$5.80, which translated into a 2008 P/E of 15 to 23 times. At the bottom of the range, this meant a discount of 43% versus Ports and 47% against Belle.
Sources say the institutional tranche would have been ôcomfortably coveredö even if institutional investors were to have been allocated part of the retail tranche as well. The subscription ratio appears to have been less than two times, but the order book was said to contain a lot of quality investors who would have translated into a good shareholder base. According to the sources, the take-up among US investors was particularly strong,
The muted interest from retail investors was believed to have been partly due to allegations by disgruntled workers of its Korean parent company, ELand World, and Korean labour unions that ELand is facing financial problems, is engaged in unfair labour practices, has breached Korean liquor sales laws and has been penalised by the Korean Fair Trade Commission for inventory sale violations. E-Land noted in a statement on the final day of bookbuilding that none of these issues has anything to do with the listing-candidate (separately, the parent also denied being in financial difficulties), but the negative press is still believed to have made retail investors less inclined to participate in the deal. The issue doesnÆt seem to have had much û if any û impact on institutional demand.
Another reason why retail investors held back may have been MaoyeÆs muted trading debut. The stock fell a combined 3.2% on its first two days of trading on Monday and Tuesday this week, and while it recovered all of that on Wednesday when it jumped 5%, those gains may have come too late for retail investors pondering whether or not to take a chance on E-Land as well. E-LandÆs retail offering closed at noon on Wednesday. Maoye gained another 2.9% yesterday to a close of HK$3.24, which is 4.5% above the IPO price of HK$3.10.
Meanwhile, Artini attracted about 30-35 investors to its offering, which was priced at HK$2.22, representing a P/E multiple of 12 times for the fiscal year that ends in March 2009. The order book was very price sensitive at the lower half of the HK$2.22 to HK$3.43 price range, but the level of interest was solid with the institutional tranche about 1.5 times covered. The buyers were mainly long-only funds and approximately 50% of the demand came from Asia, while Europe and the US accounted for about 25% each. The 10% retail portion was about 52% filled.
The company started as an original equipment manufacturer but has been building up its own brands over the past four years and now generates just under half its revenues (48%) from its own retail network in Hong Kong, China and Macau. It sold 28% of its share capital in the form of 280 million shares, of which just over 89% were new shares. There is also a 15% greenshoe that could boost total proceeds to $92 million.