Australia-based greenfield mining company Resourcehouse scrapped its IPO during the weekend after failing to attract enough interest from investors and is now planning to use Chinese debt to fund its coal project.
The company was seeking to raise between $3.3 billion and $3.6 billion in what would have been Hong Kong's biggest listing so far this year and had strong backing from a number of Chinese state-owned companies, but the deal faced an uphill battle from the start with institutional investors who had a host of concerns about both the company and the offering.
The biggest worries included the execution risks related to the company’s two main coal and iron ore mines, which aren’t scheduled to start operations until 2014; the fact that the mining rights will not be owned by Resourcehouse but by companies controlled by its founder Clive Palmer; and the fact that there have been numerous changes to the bookrunners during the company’s repeated attempts to list in Hong Kong.
However, in a statement published on its website during the weekend, the company made no mention of any investor concerns but said that its board had “decided not to proceed with the proposed global offering at this time given global market conditions and the fact that they continued to decline during and after the company’s international roadshow”. This was Resourcehouse’s fourth attempt to list in Hong Kong during the past few years, but the first time that it actually went far enough in the process to launch a formal roadshow and set a price range.
The final roll-call of banks involved on the deal was made up of Bank of China International, HSBC, Royal Bank of Scotland and UBS — but the challenges this deal faced were reflected in an ever-shifting line-up of banks. Bank of China had been working with Resourcehouse since the middle of last year, when it was mandated together with Credit Suisse and J.P. Morgan to replace Citi, Macquarie and UBS, which were on the deal in December 2009. Credit Suisse chose to step down ahead of the investor education in March, while J.P. Morgan fell off the ticket sometime after that. HSBC and RBS were then brought on board, while UBS returned to the fold after being off the deal for close to a year.
When the company launched the roadshow on May 17, despite high volatility and uncertainty in the commodities markets, some sources said it had decided to go ahead because it was difficult to get institutional investors to do any work on the company until they knew it would definitely launch.
After scrapping the IPO, the key question will be where that money is going to come from. In the statement, Resourcehouse said the board has received “multiple offers and indications of interest to work with the company financially and/or strategically and [it] is considering numerous options to optimise value for the company and its investors”.
The company also denied that it had tried to relaunch a scaled-down offering last Friday and said no decision was made at any time to change or modify the terms. However, some investors did receive a revised term sheet, suggesting that one or more bookrunners were fishing for orders in the hope of resurrecting the transaction.
On the face of it, Resourcehouse seemed in better shape than when it tried to list in December 2009. It had listened to investors and firmed up the contracts related to the construction of its coal mine and the related infrastructure, signed off-take agreements with two separate buyers for its full production capacity, and secured a loan from the Export-Import bank of China for 70% of the total project cost.
On top of that, Palmer agreed to sell up to 49.9% of the company to public investors, compared to no more than 25% a couple of years ago, which meant the $8.1 billion coal project would have been fully funded after the IPO.
Although the company has yet to make any official statements, it now seems the project will be funded by Chinese debt. Speaking during the weekend, Palmer was reported as saying that Resourcehouse had already secured $1.5 billion in promised debt funding from Chinese banks and that the project would be able to go ahead regardless.
“If it means I have to end up with a higher equity stake in a business with $3.2 billion in annual cashflow, then so be it,” Palmer told The Australian newspaper. “That’s not a bad problem to have.”