Forgame raises $206 million as the IPOs keep coming

More companies launch roadshows, while Kerry Properties and Power Assets announce Hong Kong spin-offs. Huishan Dairy falls 3% in its debut.
Optimism received a dent on Friday as China Huishan Dairy fell 3% in its trading debut.
Optimism received a dent on Friday as China Huishan Dairy fell 3% in its trading debut.

Forgame Holdings, the Chinese online gaming company, has raised HK$1.6 billion ($206 million) ahead of its Hong Kong listing after receiving strong demand from institutional and retail investors.

The deal priced in the upper half of the indicated range and was the first Hong Kong IPO above $100 million to see a full clawback in favour of retail investors since Time Watch Investments’ $118 million offering in January this year.

It comes on the back of three successful Hong Kong IPOs in the consumer retail space and at a time when the Asian IPO market is taking off after the summer lull with several companies kicking off management roadshows. A number of other issuers have announced their intention to go public

Also in the market this week was Nexteer Automotive, the Michigan-based steering and driveline supplier that initially sought to go public in June. It was forced to abandon that first attempt after failing to secure enough orders amid the severe correction in the market that was triggered by US Federal Reserve Chairman Ben Bernanke’s talk about tapering.

As a measure of just how much market sentiment has changed since then, Nexteer relaunched the IPO on September 24 at virtually the same terms. In fact, it has even raised the price range and valuation ever so slightly for a total deal size of up to $332 million. The company had secured enough demand from institutional investors to cover the entire deal at launch, including $25 million from a corporate cornerstone investor, and the bookbuilding was done on an accelerated basis over just four days.

The final price was due to be fixed after the retail offering closed at noon on Friday. Like last time, BOC International and JP Morgan are joint bookrunners.

In Singapore, Sewko Holdings also saw a window to launch as investors started to show renewed interest in emerging markets (perhaps with the exception of Indonesia) after the US Fed announced on September 18 that it would continue to stimulate the market at an unchanged pace for now.

Sewko - a holding company for Singer Asia and which sells Singer-branded household appliances, consumer electronics and other products in Sri Lanka, Bangladesh, Thailand, India and Pakistan - was initially planning to start bookbuilding in the first week of September, but held off amid a souring sentiment for emerging markets and other risk assets. It finally chose to go ahead on Wednesday this week.

It is looking to raise up to S$149 million ($119 million) from the sale of 40.4% of its enlarged share capital, although only 63.1% of the shares on offer are new. The rest are being sold by its two existing shareholders, including private equity firm UCL Asia Partners.

The institutional order books will remain open until October 3 and the trading debut is scheduled for October 11. HSBC is the sole bookrunner.

Meanwhile, bankers have also kicked off investor education for Viva Industrial Trust, a Singapore-based real estate investment trust (Reit) focusing on business parks and logistic properties. According to sources, it is aiming to raise up to S$375 million ($299 million) and may offer a 2014 yield of just below 9%.

The institutional bookbuilding is expected to kick off on October 10. Bank of America Merrill Lynch, HSBC and Standard Chartered are joint global coordinators and bookrunners. CIMB and Maybank are joining them as bookrunners.

Spin-off trend continues
Back in Hong Kong, Kerry Properties said on Tuesday that the Hong Kong stock exchange had approved its proposal to spin off its logistics unit for a separate listing in Hong Kong and added that it has submitted a listing application. According to the announcement, Kerry Logistics Network is planning to sell up to 25% of its share capital to investors through an IPO before the exercise of any overallotment option. Another 50% of the shares will be distributed to Kerry Properties’ existing shareholders on a pro-rata basis and free of charge.

Based on the fact that it usually takes about six weeks from the filing of the A1 listing application until the company is ready to launch the deal, Kerry Logistics will hit the market in mid-November at the earliest. BOCI Asia, Citi, HSBC and Morgan Stanley are the joint sponsors.

Following on from this, Power Assets Holdings (formerly known as Hongkong Electric) announced after the market closed on Friday that it is planning to spin-off its Hong Kong electricity business through a business trust-like structure known in Hong Kong as a fixed single investment trust. It too has already submitted a listing application, it said.

Power Assets, which is a subsidiary of Cheung Kong Infrastructure, intends to retain a stake of  30%-49.9% in the trust (to be named HK Electric Investments) after the spin-off. Existing shareholders will not get any shares for free but will able to subscribe to the IPO through a preferential application.

The spin-off will need shareholder approval and the company said it would distribute a circular and convene an extraordinary general meeting as soon as practicable after the listing is approved in principal by the stock exchange. It expects the EGM to be held before the end of this year. Goldman Sachs and HSBC are joint sponsors.

The pick-up in activity comes after preliminary data from Dealogic dated September 24 showed that the volume of IPOs in Asia-Pacific amounted to just $30.1 billion in the first nine months of this year – the lowest nine-month volume since 2008. That year, which marked the height of the global financial crisis, saw $20.5 billion raised through IPOs between January and September.

Only $6.2 billion has been raised via Chinese IPOs so far this year, Dealogic said. This is the slowest nine-month period since 2003 when there was $1.2 billion of IPO issuance. The low volumes are partly caused by the freeze on A-share IPOs that has been in effect since October 2012.

The optimism got a bit of a dent on Friday, however, as China Huishan Dairy fell 3% in its trading debut. The Chinese milk producer raised $1.3 billion ahead of the listing after pricing its IPO at the top of the range and, up until it was quoted slightly below the issue price in the grey market the day before the debut, the deal was widely considered to have gone very well.

More than 250 institutional investors submitted orders and the allocations were heavily skewed towards long-only investors, according to sources. The retail demand was also strong enough to trigger a clawback that increased the size of the retail tranche to 20% of the total deal from 10% initially.

The fact that the company finished below the IPO price on the first day was therefore quite disappointing, particularly at a time when Hong Kong IPOs are just taking off again after three very challenging months. A good aftermarket performance would make investors more inclined to commit money to other issuers in the pipeline.

After 30 minutes of trading, Huishan Dairy was down 9.7% but then edged higher during the session.

Forgame attracted more than 300 institutional investors and one source said that, after the clawback, which increased the retail portion of the deal to 50% from 10%, the remaining institutional tranche was more than 40 times covered. And that was despite the fact that the bookrunners capped the orders at 10% of the total deal size from day two onwards.

The demand was slightly skewed towards hedge funds but more than 60% of the institutional tranche was allocated to long-only investors, the source said.

The strong demand and the fact that there was very little price sensitivity in the order book meant the company could have fixed the price at the top. However, with the aftermarket in mind, it chose to be conservative and set the price at HK$51, versus an indicated range of HK$43.50-HK$55.

The final price translates into a 2014 price-to-earnings ratio of 11.1 times, which equals a slight discount to US-listed Netease and Hong Kong-listed NetDragon Websoft, which at the time of pricing were quoted at 2014 P/E multiples of 11.8 and 16.3 times respectively, Bloomberg data showed. These two were viewed as the closest comparables as most of the other Chinese gaming companies tend to focus more on multi-player roll-playing games.

As of June this year, Forgame offered 79 self-developed and licensed games on its 91wan platform and had more than 179 million registered players. The games are free but the company makes revenues from players buying virtual items, such as weapons, to improve their in-game experience. Aside from the online games, the company also has a fast-growing mobile games business, according to its listing prospectus.

It sold a total of 31.37 million shares, of which 65% were new. The deal comes with a 15% overallotment option that could increase the total proceeds to about $237 million if exercised in full.

JP Morgan and Morgan Stanley were joint global coordinators and bookrunners, while CICC and Macquarie were joint bookrunners. Forgame will start trading in Hong Kong on October 3.

¬ Haymarket Media Limited. All rights reserved.

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