Golden Throat successfully coughs up $108m IPO

The Chinese throat lozenges maker overcame turbulent markets to complete its Hong Kong IPO after trading in a quarter of A-share-listed companies was suspended.

Chinese lozenges maker Golden Throat overcame testing market conditions on Tuesday to successfully price its initial public offering in Hong Kong, albeit near the bottom of its indicative range as Chinese share worries continued to swirl.

Beijing suspended new share sales over the weekend in a bid to stabilise the country’s stock markets, after these fell almost 30% in three weeks. Some 760 companies — more than a quarter of all A-share listed-companies on the Shanghai and Shenzhen exchanges — have also so far suspended share trading, according to media reports.

Golden Throat, a very well known cough sweet maker in China, was nonetheless able to push its deal across the finish line by selling shares at HK$4.60 per unit, just two cents off the bottom of its targeted range.
 
With 181.6 million shares on offer, representing 25% of the company's enlarged share capital, Golden Throat raised $107.7 million pre-shoe, valuing the company at 15 times 2015 earnings, according to a source close to the deal. If exercised, a greenshoe option could boost the total raised to $124 million.
 
As if the volatile trading environment in China was not enough — to help support shares 21 of China’s largest securities houses have agreed to jointly invest Rmb120 billion ($19.3 billion) in an exchange-traded fund — investors are also jittery due to the possibility of a Greek eurozone exit after voters on Sunday rejected creditor demands.
 
“We were pretty unlucky in terms of [timing]. We closed the book just the day after the Greece results, so it hasn’t been smooth sailing,” the source close to the Golden Throat deal told FinanceAsia.
 
“It probably wouldn’t have been a surprise if [Golden Throat] was pulled,” he added, after Canadian financial services group Manulife yanked its $426 million Singapore Reit IPO on Tuesday due to insufficient demand. “Obviously it’s a very tough market.”
 
The majority of the investors in the IPO were Asian —  the source close to the deal said, noting limited participation from American and European funds. A number of investors also held off from partaking in the IPO due to the market volatility, although both the Hong Kong retail tranche and the institutional tranche were covered, he said.
 
Brand recognition
 
The Shanghai Stock Exchange Composite Index has dropped 6.2% so far this week, falling a further 1.3% on Tuesday. The CSI 300 Index has fallen 6.9% over the same period, while Hong Kong’s Hang Seng Index has lost 4.3%.
 
But Golden Throat, which builds on traditional Chinese herbal medicine culture, has strong brand recognition in China, helping it to ride out the market turbulence. In 2013 it had a market-leading 25.5% share of the market on the Chinese mainland in terms of retail sales value, according to Euromonitor Report, and has strong growth forecasts. 

Four cornerstone investors — Super Silverwood, Guangzhou Ruitian, Town Health, and China New Rich Medicine — also played a key role in completing the deal. They pledged a combined total of $40 million in the throat lozenges company.

IPO proceeds will be used towards a new medicine production, research and development base, converting the current Liuzhou City-based headquarters into a food production plant and food research and development centre; establishing a Chinese herbs processing base; and upgrading electronic tracking code systems.

Pre-marketing kicked off on June 22 under the sole lead of Credit Suisse, one week after the sell-off in A-share markets began.

Although Golden Throat’s IPO is a notable win for the market, it also seems clear that the very shaky Greater China backdrop will likely weigh on broader investor confidence and dampen equity capital market activity in Hong Kong.

“Clearly it’s not great when people can’t sell and this is probably another example of a rather heavy-handed approach [by China],” the source said. In addition to getting brokers to invest Rmb120 billion in stock markets, China has cut interest rates and loosened margin-financing rules, which have so far done little to curb the markets' declines.

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