The Hong Kong initial public offering for Fuyao Glass was priced at the very top of its indicative price range on Wednesday after generating extremely strong institutional and retail demand.
The HK$7.39 billion ($952.98 million) deal's popularity is testament to the underlying strength of the company, which is already listed in Shanghai and ranks as the world's second largest auto manufacturer by sales. But investors enthusiastic reception is also undoubtedly momentum driven given the record turnover underpinning China's stockmarkets and dearth of recent flotations from Hong Kong.
Fuyao Glass has now executed Territory's largest flotation of the year, although it is unlikely to hold the record for long given that GF Securities is on the road with an IPO that could raise up to $4.13 billion post greenshoe.
Final pricing of Fuyao's 439.67 million primary share deal came at HK$16.80 per share compared to an indicative price range of HK$14.80 to HK$16.80. Sources close to the deal said the institutional order book closed about 10 times oversubscribed excluding cornerstone demand and orders with no price sensitivity.
A group of eight cornerstone investors took up 39.1% of the entire deal.
According to a term sheet seen by FinanceAsia these comprise: Hillhouse Funds on $100 million; Genesis Investment Management $80 million; China Minsheng Investment Corp $61 million; Haixia Capital Management $31million; Guangzhou Automobile Group $30 million; ESAS Holdings $30 million; Greenland Group $30 million and 7-Industries $10 million.
The institutional order book comprised roughly 350 accounts with a mix of global long-only, sovereign wealth funds and private banks. A large number were existing A share holders wanting to hold Fuyao's stock in both jurisdictions.
The retail tranche closed just over 40 times oversubscribed, which means the second clawback will be triggered boosting retail investors from 12.5% to 17.5% of the entire deal.
At HK$16.80, the Hong Kong offering has been priced at an 18.64% discount to Fuyao's Rmb16.82 close in Shanghai on Wednesday. The effective discount has doubled over the past week thanks to the strong performance of Fuyao's A shares, which traded up a further 3.64% on the day of pricing.
By contrast, the Shanghai Composite Index fell 0.83% the same day. The recent surge in the benchmark index came to a halt on Wednesday, reversing 10-days of gains, which had prompted record high turnover on the exchange.
Strong retail buying in particular has been one of the driving forces pushing valuations up across the board. Shanghai-listed stocks now trade at 13.5 times forward earnings based on Bloomberg figures compared to a five year average of 10.2 times.
Fuyao has also performed consistently well since the beginning of the year, rising 38.5% compared to a 13.1% increase in the benchmark index. On a one-year basis it is up 109%.
Fuyao's A shares have always been popular with qualified foreign institutional investors. But the company's dual listing in Hong Kong is likely to have helped push valuations higher thanks to the way it has re-focused investors' attention on the company.
According to syndicate consensus estimates, Fuyao's Hong Kong deal has been priced at 12.5 times forward earnings pre-greenshoe.
A second positive force pushing the valuation has been Fuyao's overseas expansion plans. Like many dominant domestic operators, it now wants to become the global leader, overtaking Asahi Glass, which has a 22% market share compared to Fuyao's 20%.
This year the company plans to open plants in Russia and the US. In a recent research report, Credit Suisse estimated the Russian plant will contribute about 2% of earnings in 2016, while the US factory will generate about 18%.
The company has said that 35% of proceeds will be used to invest in its US factory and 45% in its Russia one, with the remainder assigned to general working capital and the repayment of bank loans.
Listing is scheduled for March 31. Joint sponsors are China Merchants Securities and UBS with BOCI, BNP Paribas, Goldman Sachs, HSBC and JP Morgan as joint bookrunners.