Haitong Securities, which is already listed in Shanghai, yesterday launched the international roadshow for a Hong Kong initial public offering of between HK$11.53 billion and HK$13 billion ($1.48 billion to $1.67 billion).
This is the third IPO above $1 billion to launch in Hong Kong this week after Chow Tai Fook Jewellery and New China Life Insurance, giving the market a lot of paper to absorb this close to year-end — especially in a year when investors have lost money on most new listings.
Haitong, which is China’s third largest brokerage in terms of revenues, is offering 1.229 billion H-shares at a price ranging from HK$9.38 to HK$10.58. The deal comes with a 15% greenshoe option that could increase the proceeds to as much as $1.92 billion.
The company has secured two cornerstone investors, Warburg Pincus and Chuo Mitsui Trust and Banking, which have committed $210 million and $12 million, respectively, to the deal, a source said. This means they will take up no more than 15% of the offering at the bottom of the price range, which is low compared to many other IPOs recently.
A large cornerstone tranche has proved an important tool for getting deals across the line in the past few months as the secondary market has remained volatile and investors have become increasingly wary of IPOs. And sticking to a more “normal” 15% could be a risky strategy — especially with so many other large deals in the market at the same time. Citic Securities, Haitong’s bigger rival that listed in Hong Kong in early October, attracted cornerstone demand for about half of its $1.7 billion deal pre-launch.
Haitong has set aside 5% of the deal for retail investors and will offer the remaining 95% to institutional investors. The retail portion could increase to a maximum 20% through a clawback mechanism in case of strong demand. The deal will account for 13% of the issued equity capital pre-shoe and 15% post-shoe, the source said.
The price range values Haitong at a 2012 price-to-book (P/B) multiple of between 1.17 times and 1.32 times. That compares with 1.39 times for Citic Securities’ Hong Kong-listed shares, according to Bloomberg data.
At the bottom end, the price puts it at a close to 7% discount to Haitong’s Shanghai-listed A-shares, which closed yesterday at Rmb8.22, or HK$10.04. The H-share price can be fixed at a maximum 10% discount against its 20-day volume-weighted average price in the A-share market, which means the price may have to be fixed above the bottom of the range if the A-share price keeps rising.
The A-shares gained 3.9% yesterday after finishing at its lowest level since early October on Wednesday.
Haitong’s Hong Kong IPO launch comes at a time when the global financial markets remain persistently volatile. Stocks in Asia shot up yesterday after the Federal Reserve and five other central banks, in an effort to ease Europe’s debt crisis, took measures to make it cheaper for banks to trade in US dollars. Markets in Europe and the US rallied on the same news on Wednesday.
The coordinated central bank move came on the same day as China lowered its reserve requirements for commercial banks and a day after Standard & Poor’s cut its credit ratings for a host of global banks, although Chinese lenders such as Bank of China were upgraded.
Hong Kong’s benchmark Hang Seng Index jumped 5.6% yesterday and the Shanghai Stock Exchange Composite Index gained 2.3%, following a 4.2% jump in the Dow Jones Industrial Average and a 3.2% climb in the FTSE 100 Index in London the previous day.
Haitong hopes to follow in the footsteps of Citic Securities, which is China’s largest publicly traded brokerage firm and the first to obtain a listing in Hong Kong. Citic, which is also listed in Shanghai, raised $1.7 billion from its Hong Kong listing, which ranks as the largest IPO from the financial sector in Asia-Pacific this year. Like Citic, Haitong offers international investors direct access to China’s brokerage sector.
As of September 30 this year, Haitong had more than 4 million retail customers and more than 12,000 institutional and high-net-worth clients, according to a listing document published on the Hong Kong stock exchange website.
Haitong noted that competition is intensifying and more firms are seeking to enter or expand in the industry as regulatory changes and other factors contribute to a gradual relaxation of China’s securities regulations. The brokerage said it aims to become a domestic top-tier and globally renowned financial group with a distinct focus on the securities business. It also said that it will actively pursue its internationalisation strategy to capture cross-border opportunities.
Haitong was established in 1988 and listed on the Shanghai stock exchange in 2007.
The institutional bookbuilding will close on December 8 and the final price will be fixed after the New York close on that same day. The trading debut is scheduled for December 15.
Citi, Credit Suisse, Deutsche Bank, Haitong International and J.P. Morgan are joint global coordinators as well as bookrunners. HSBC, Nomura, Standard Chartered and UBS are joint bookrunners.
Separately, Sitoy Group has priced its Hong Kong IPO at the bottom of the range at HK$2.95 for a total deal size of HK$736.3 million ($95 million). The Hong Kong-based manufacturer of handbags and other leather goods for luxury brands like Prada, Coach and Tumi, attracted stronger than expected demand, especially from retail investors who have shunned most other IPOs recently.
According to a source, the 10% retail tranche was about five times covered, while the institutional portion of the deal was multiple times covered and attracted around 100 investors. The buyers included long-only funds, sovereign wealth funds and local tycoons. The majority of the demand came from Asia, but the source said there was good take-up in Europe and the US as well.
The deal also had strong support from Prada and venture capital firm IDG, which came in as cornerstones and bought a combined 41.6% of the deal. Aside from its strong market position, investors were said to have given a lot of credit to the management. It also helped, of course, that the deal came at a sizeable discount versus other similar original equipment manufacturers in Hong Kong.
Sitoy offered 249.6 million shares at a price between HK$2.95 and HK$3.95 each. The final price of HK$2.95 translated into 6.9 times the projected earnings for 2012, which at the time of pricing compared with about 10.4 times for shoe manufacturer Stella International, which was viewed as one of the key comparables. Stella gained 9.4% during Sitoy’s roadshow and bookbuilding.
The stock will start trading on December 6. Bank of America Merrill Lynch was the sole bookrunner.