Hanhua draws $40m cornerstone pledge for IPO

Bankers secured two cornerstone investors for Hanhua ahead of the Chinese microfinance company's listing.

Hanhua Financial has secured two cornerstone investments totaling $40 million two weeks ahead of its planned $400 million initial public offering in Hong Kong.

Shandong State-owned Assets Investments, an investment arm of the Shandong government, and Hong Kong solar power producer Jun Yang Solar Power Investments pledged to invest $30 million and $10 million, respectively, in the Chinese micro finance company. The lock-up period is six months.

The formal road show kicked off Wednesday, with bankers travelling to Hong Kong, Singapore, London and New York to meet with institutional investors. Meetings will continue through March 6, with Hanhua expected to price that night and formally list on March 13.

Some 988 million H-shares are being offered Hanhua Financial within a pricing range of HK$2.28 – HK$2.88 per share, representing 22.36% of the company's enlarged capital base, according to a term sheet.

The deal is currently valued at between $290 million and $367 million, making for a market capitalisation of up to $1.6 billion. There are a further 148.2 million shares offered via a greenshoe option.

Chinese financial stocks are not in vogue at the moment. Worries over the country’s bad debt levels are widespread – some economists say a Chinese credit crisis is almost certain – and a number of hedge funds see mainland financials as prime shorting opportunities

As it is, a number of Chinese bank stocks have performed poorly since listing – Everbright Bank is down 23% year-to-date, having raised HK$23.25 billion ($3 billion) in December, while Bank of Chongqing is down 18% since its $548 million October listing.

In contrast, China Cinda Asset Management, the first distressed-debt manager in China to float on the market, has seen its shares climb about 25% since its $2.46 billion December listing.

Niche play

Hanhua Financial is China’s largest credit-guarantee company in terms of provinces covered, according to media reports. But it is also potentially a niche play for investors since it offers loans to small-to-medium-sized enterprises, often overlooked by larger banks. 

One banker close to the deal said there had been decent investor interest expressed since pre-marketing started a few days ago, mainly from Chinese long-only institutions seeking to learn more about the micro finance company.

“So far, so good. It’s been pretty strong. We started out with a good book. It’s early days still but I’m quite perky about this,” the banker told FinanceAsia. “We’ve seen slightly more demand from Chinese investors but there’s still global [long-only investor interest too].”

The banker added that it was too early to give an idea of when the deal would price.

Hanhua will use roughly 70% of the proceeds from the IPO for micro and small loans, 20% towards its credit guarantee business and the remaining 10% to develop and offer new products and services.

CICC, China Galaxy International and Credit Suisse are the joint bookrunners. 

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