Hanhua Financial to kick-off IPO roadshow

The Chinese microfinance group aims to raise up to $400 million in an initial public offering in Hong Kong but it may not be an easy sell.
Storm clouds ahead? The IPO may prove a difficult sell with many wary about investing in Chinese financials.
Storm clouds ahead? The IPO may prove a difficult sell with many wary about investing in Chinese financials.

The pre-marketing has started for the Hong Kong initial public offering of Hanhua Financial Holding, a Chinese microfinance company that aims to raise up to $400 million.

According to the term sheet, there will be 988 million H-shares on offer, with 148.2 million on greenshoe. The international roadshow will start on Monday, with the listing scheduled for March 10.

Hanhua Financial 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, the term sheet said.

However, it may prove a difficult sell. Many remain wary about investing in Chinese equities, financials in particular. Bears question the sustainability of continued post-financial crisis growth on the mainland, which has been underpinned by easy credit.

In addition to financials, hedge funds say the short-selling opportunities include property and materials-related stocks. Some bankers are convinced the country is spiralling towards a credit crisis.

“Banking is not popular – there are issues around trust in China,” one equity executive at a US-based bank said recently in Hong Kong.

Financial IPOs totalled 22.8% last year, down considerably compared to the 40.8% in 2012, according to Bank of America Merrill Lynch.

Furthermore, some of the companies that managed to go public have performed poorly since listing.

Everbright Bank, which raised HK$23.25 billion ($3 billion) in a Hong Kong listing in December, is down 22% from the time of listing through February 21. 

It was its third attempt at a listing. Bank of Chongqing, which raised $548 million in October, is down 17% year-to-date, while Huishang Bank's performance is flat since its November $1.2 billion IPO

Others have fared better. China Cinda Asset Management raised $2.46 billion in its December listing and shares are up 36% year-to-date. 

That said, interest in financials is not strong. “The financial sector is kind of tough right now,” acknowledged a person close to the Hanhua deal.

However, Hanhua offers loans to small- to medium-size enterprises, which differentiates it from mainstream finance companies, the person argued.

“Outside of [the tough environment], people are still very much willing to look at these types of companies. People recognise [Hanhua] has a lot of growth,” the person said.

“It really fills the hole left by mainstream banks in terms of financing [and has] a pretty significant growth portion of the market. They focus on SMEs, which is not a segment that traditional banks can easily penetrate. They’re going for the big corporates rather than your mom and pops,” the person said.

Its main competition is China Huirong Financial, although the person notes that Huirong focuses on offering loans in the Guandong province in China, while Hanhua is more national. The institutional/retail split at the moment is 90/10.

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

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