HK IPOs continue at breakneck pace

A throat lozenges manufacturer, a brokerage and a private obstetrics and gynaecology hospital group are all seeking to float shares in Hong Kong.
Golden Throat began pre-marketing ahead of its Hong Kong listing.
Golden Throat began pre-marketing ahead of its Hong Kong listing.

Hong Kong’s IPO market continues at a breakneck pace, with a number of issuers launching IPOs on June 22 amid volatile markets.

Harmonicare Medical Holdings, a private obstetrics and gynaecology hospital group in China, is looking to raise up to HK$1.6 billion ($202 million) in its flotation.

Futures firm Luzheng Futures Company meanwhile is seeking just over HK$1 billion pre-greenshoe in its IPO, while Golden Throat Holdings, a lozenges manufacturer, began pre-marketing ahead of its own Hong Kong listing.

The IPOs come amid severe turbulence in A-share markets. Last week the Shanghai Stock Exchange Composite Index fell nearly 12%. China’s A-share markets were closed on June 22 for the Tuen Ng Festival. The Hang Seng Index only fell 0.38% last week, and has recovered 1.2% on June 22.

These drops coincide with the mainland’s regulatory moves to put a cap on brokerages’ margin financing business over the June 13 weekend.

Drops notwithstanding, the issuers are seeking to replicate the success of a number of other recent IPOs, such as Red Star Macalline Group and Legend Holdings, both of which priced their Hong Kong listings at the top of their indicative ranges last week.

Harmonicare Medical Holdings is seeking to float its shares, and will offer some 210.8 million shares at an indicative price range of HK$6.80 to HK$7.55 per unit. Some 91% of the shares will be primary and the 9% secondary, according to a term sheet seen by FinanceAsia.

There will be a traditional 15% overallotment option. The international tranche will take up some 90% of the deal, while 10% will be allocated to the Hong Kong retail tranche. Morgan Stanley and CCB International are the joint sponsors on the deal.

On a post-shoe basis, the total outstanding shares will represent 27.5% of the company. This leaves an implied market capitalisation between HK$5.22 billion and HK$5.79 billion ($663 million to $736 million.)

Some 60% of the proceeds will go towards opening new hospitals in Beijing, Chongqing, Hangzhou, Nanjing and Xiamen. Fifteen percent will be used for hospital acquisitions, 10% to upgrade existing facilities and add new equipment, and 5% to improve its IT systems. The deal is scheduled to price on June 30.

Out of all of the private obstetrics and gynaecology hospitals in China, Harmonicare ranked first in terms of group revenue in 2013 and the number of hospitals by the end of 2013, according to Frost & Sullivan. Revenue increased to Rmb935.8 million ($150.7 million) in 2014, compared with Rmb833.2 million in 2013 and Rmb750.3 million in 2012.

Its market share stood at 13% in 2013, more than twice that of its closest competitor. The company operates for-profit hospitals which specialise in providing medical diagnosis and treatment, and preventative care to women and newborns. It owns and operates 11 hospitals in seven first- and second-tier cities in China, with 566 beds in operation, according to the company’s A-1 filing.

Luzheng Futures
Luzheng Futures Company, a Shandong-based brokerage company, is looking to raise up to HK$1 billion ($129 million) in its flotation under the joint leads of Qilu International and Haitong.

On offer will be 275 million H-shares at an indicative price range between HK$2.90 to HK$3.64 per unit. Similar to Harmonicare, there will be a 91%/9% primary and secondary split.

Some 90% of the deal will be allocated to international investors and the remainder to the Hong Kong retail tranche. An exercised greenshoe will boost the deal size by 41.3 million shares, and bring the total deal to HK$1.15 billion post-shoe.

Four cornerstone investors have agreed to purchase $40 million — Citic Capital Asset Management will buy $8 million worth of shares; Farallon Capital Management has pledged $10 million; CM International Capital will buy $12 million; and Roche & Owen, $10 million. The cornerstones have a six-month lockup period.

The roadshow will last all week, with the deal scheduled to price on June 26.

Luzheng Futures has three lines of business — futures brokerage, asset management, and commodity trading and risk management.

Golden Throat Holdings
Golden Throat Holdings, a lozenges manufacturer in China, began pre-marketing ahead of its Hong Kong-listing under the sole lead of Credit Suisse. The shares or size of the deal have not yet been set, with company executives engaging in investor education this week. The roadshow is scheduled for June 30, with pricing and allocations set to be finalised on July 6.

Ninety-percent of the deal will be made available to international investors, and 10% for the Hong Kong retail portion.

Proceeds will go 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.

Golden Throat, which produces patent-protected lozenges, had the largest market share in China in terms of retail sales value in 2013 of 25.5%, according to the Euromonitor Report. The company builds on the traditional Chinese herbal medicine culture, and is very well recognised in the mainland, hence is forecasting strong growth.

Rocky markets
Volatile markets have weighed on at least one recent IPO pricing.

China’s largest coalbed methane producer AAG Energy priced its shares at the bottom of its indicative range on June 17 due to weaker investor sentiment and a high valuation.

Others have managed to weather the storm. Red Star Macalline Group, backed by private equity firm Warburg Pincus, managed to price its shares at the top of its indicative range and raise $931 million. This was especially impressive considering the initial feedback during the roadshow that some investors — mainly hedge funds — were price sensitive and trying to push for the deal to be priced at the low end of the range.

Strong demand from a number of Chinese long-only investors for Red Star Macalline — known as China’s answer to Ikea — allowed the issuer to price 543.6 million primary shares at the top of its range at HK$13.28 per unit.

In addition, Legend Holdings, the largest shareholder of personal-computer maker Lenovo Group, raised $2 billion in its own flotation over the weekend. While Red Star Macalline had price sensitivity, Legend has solid demand from day one. The company’s strong brand name and attractive valuation resulted in the institutional tranche being oversubscribed from the first day of the bookbuild, and allowed the issuer to price shares at HK$42.98, just two cents off of the top of the range.

Lee & Man Paper Manufacturing
Meanwhile Japanese company Nippon Paper Group sought to raise up to $122 million in a clean-up trade in Lee & Man Paper Manufacturing on Monday night.

Some 201 million shares were on offer, or 4.3% of the company’s outstanding shares, at a price range between HK$4.60 to HK$4.80 per unit, representing a 6.1% to 10% discount to the June 22 close of HK$5.11 per unit. JP Morgan was the sole bookrunner.



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