Haitong Securities postpones Hong Kong IPO

The Chinese brokerage calls off its IPO of up to $1.67 billion blaming market conditions, while Beijing Jingneng kicks off the roadshow for a revived IPO of up to $256 million.

Haitong Securities, which is already listed in Shanghai, yesterday postponed its initial public offering in Hong Kong due to volatile market conditions, sources said. Haitong, China’s third largest brokerage in terms of revenues, had been seeking to raise between HK$11.53 billion and HK$13 billion ($1.48 billion to $1.67 billion) from the listing.

The news came after the pricing was delayed from Friday, when global financial markets became increasingly choppy ahead of the European Union meetings on the debt crisis. Hong Kong’s benchmark Hang Seng Index ended down 2.7% on Friday. It finished almost unchanged yesterday, but has lost nearly 20% this year.

One source said that it was difficult to get the transaction done last week, and keeping the books open for another couple of days did not help in the end. Another source noted that Haitong’s IPO went from being covered to not being covered, as some large orders were pulled and the secondary market deteriorated towards the end of the bookbuilding.

The sources said there is no new alternative timetable for the deal.

Not everyone is deterred by the volatile market, however. Beijing Jingneng Clean Energy yesterday launched the roadshow for a Hong Kong IPO that is targeting between HK$1.81 billion and HK$1.99 billion ($233 million to $256 million). The company initially tried to go public in June but called off the deal after it failed to gain much momentum. Back then it sought to raise as much as $630 million, and the fact it is going for a significantly smaller size this time around should improve the chances of getting the deal done.

Also, New China Life Insurance and Chow Tai Fook Jewellery both priced IPOs of more than $1 billion at the end of last week, showing that deals can still get done even though the competition for funds and for investor attention have been fierce in recent weeks. However, most Hong Kong IPOs that closed last week priced either at or near the bottom of the range. Many also drew weak demand from retail investors.

Chow Tai Fook Jewellery, the largest jewellery retailer in Hong Kong and China, fixed the price at the bottom of the range for a total deal size of $2 billion. If a 15% greenshoe option is exercised in full, the proceeds could increase to $2.3 billion, pushing it into the top-two Hong Kong listings this year after Prada’s $2.5 billion IPO and ahead of Shanghai Pharmaceutical’s $2.1 billion deal.

New China Life Insurance raised $1.9 billion from its Hong Kong/Shanghai IPO after fixing the price near the bottom of the range.

Haitong’s IPO would also have been one of the largest in Hong Kong this year, and the second-biggest from the financial sector following Citic Securities’ $1.7 billion H-share IPO in October. Like Citic, Haitong offered international investors direct access to China’s brokerage sector, but it had few features to distinguish it from its larger competitor and investors may not have seen enough reason to own that particular stock.

Haitong was offering 1.229 billion H-shares at a price ranging from HK$9.38 to HK$10.58. The range would have valued the company at a 2012 price-to-book (P/B) multiple of between 1.17 times and 1.32 times, compared with about 1.3 times for Citic Securities’ Hong Kong-listed shares, according to Bloomberg data.

Warburg Pincus and Chuo Mitsui Trust and Banking committed $210 million and $12 million, respectively, to the deal as cornerstone investors. That means no more than 15% of the institutional tranche was locked-up by cornerstones. This is relatively small compared to other recently priced IPOs and may have contributed to the lack of interest from other investors.

Haitong’s Shanghai-listed A-shares fell 0.6% to Rmb8.26 after gaining 1.1% during the H-share roadshow, which started on December 1.

Headquartered in Shanghai, Haitong’s branches are located across 27 providences and 113 cities in China, and as of September 30 it operates 13 branches in Hong Kong and Macau through its Hong Kong listed subsidiary, Haitong International Securities. Haitong was established in 1988 and listed on the Shanghai Stock Exchange in 2007.

Citi, Credit Suisse, Deutsche Bank, Haitong International and J.P. Morgan were joint global coordinators as well as bookrunners for the deal. HSBC, Nomura, Standard Chartered and UBS were joint bookrunners.

Meanhile, Beijing Jingneng, which operates gas-fired and wind-powered electricity generating plants, is offering 1.135 billion shares at a price ranging from HK$1.59 to HK$1.75 per share.

The price range values the company at a 2012 price-to-earnings (P/E) ratio of 7.1 to 7.8 times, placing it at a discount to its peers. According to a source, wind farm developers trade at an average 2012 P/E of about eight to 10.4 times, while Chinese thermal IPPs (independent power producers) trade at an average 11.6 times.

The deal could be expanded to as much as $294 million, if a 15% greenshoe is exercised in full. For both the base deal and the greenshoe, 90.9% of the offering is new shares and the remaining 9.1% is existing shares.

The clean energy provider has secured four cornerstone investors that will buy $140 million worth of shares, or about 60% of the base deal at the bottom of the range.

The cornerstones are SAIF Partners, which has promised to invest $50 million, and Goldwind New Energy, Everbright Private Equity and China Aerospace Science and Technology, which have committed to take $30 million worth of shares each. They are all subject to a six-month lock-up.

About 50% of the net proceeds will be used for investing in the construction of wind power and gas-fired power projects, including about 62% that will mostly go towards the construction of gas-fired power projects in China in 2012, according to a term sheet.

The remaining 50% will be used to buy key equipment, to repayment bank loans, and for working capital.

Barclays Capital, BOC International, Goldman Sachs, Macquarie and UBS, which were on the ticket in June, are acting as joint bookrunners this time around as well, but are being joined by Bocom International, China Merchants Bank and Daiwa.

The institutional bookbuilding and the Hong Kong public offering will both finish on December 15 and the price will be fixed after the US close on that same day, which will allow for a trading debut on December 22.

¬ Haymarket Media Limited. All rights reserved.
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