Hong Kong IPO candidates rush to market as year-end nears

Companies seeking to raise a total of at least $8 billion are testing the waters and are expected to launch deals in the next couple of weeks.

After months of thin volumes and a series of postponed deals, all of a sudden the Hong Kong market is brimming with listing hopefuls. To say that the primary market is buzzing with activity is not quite right — in fact several of the smaller deals that are currently pre-marketing are keeping a very low profile — but there is definitely a lot of choice for investors right now.

Adding up the information from various sources, we estimate that more than 10 companies could go public in Hong Kong between now and the end of the year, including at least four billion-dollar plus offerings. Even at the low end of their targets, these companies are seeking to raise a combined total of at least $8 billion. This compares with four IPOs (above $100 million) raising a total of $2.2 billion since the beginning of September.

One could argue that there is a bit more confidence in the market after Greece and Italy got new governments and the US economy has started to show signs of improvement, but nobody is saying that the European crisis is over, or for that matter is even close to being solved. Global equity markets also remain extremely headline driven and on Wednesday they took another beating after central bankers said the European debt crisis is posing dangers to the global economy — as if we didn’t know that already.

Bank of Japan governor Masaaki Shirakawa said the crisis is already affecting emerging nations and Japan in multiple ways, and in the UK, Bank of England governor Mervyn King projected that the British economy will stay flat until the middle of next year. Adding to the woes, the benchmark oil price returned above $100 per barrel for the first time since June.

The Dow Jones index lost 1.6% overnight and, in Hong Kong, the Hang Seng Index fell for the second straight session. The 2% decline took the index below 19,000 points yet again.

Indeed, the only thing that has truly changed versus a few weeks ago is the fact that Christmas is that much closer. Companies are literally running out of time if they want to complete their listings before year-end. If they don’t get their deals on the road now, they will have to join the queue for next year. It is questionable whether bankers actually think there is enough capacity in the market to absorb all these deals in the next few weeks, but they seem willing to give it a go — motivated no doubt by the prospect of propping up their fee numbers before their own books close for the year. And, of course, both issuers and bankers are faced with the fact that investor appetite for IPOs might not be any better next year.

Meanwhile, investors are sitting on a lot of cash and may have to invest some of that before they wrap up for the year. Supposedly there is a lingering concern among cash-rich funds that they may end up underperforming if markets were to stage a late-year rally. However, investors don’t necessarily have to look to the primary market if they want to increase their exposure. There are a lot of cheap stocks to choose from in the secondary market as well. Meanwhile, funds that have had a decent performance this year — which would include being flat — may be cautious about adding exposure that could reduce their returns at the last minute.

The biggest deals include PCCW’s telecom business, which is being spun off as a trust and is seeking to raise between $1.2 billion and $1.4 billion. Under the name of HKT Trust, that IPO is already bookbuilding and is due to price after the US close on November 22. CICC, Deutsche Bank, Goldman Sachs, HSBC and Standard Chartered are global coordinators and bookrunners for the offering. DBS and J.P. Morgan are joining them as bookrunners.

And, on Monday this week, bankers kicked off investor education for Chow Tai Fook Jewellery, which is expected to raise between $2 billion and $3 billion by selling 10.5% of the company. About three-quarters of the shares on offer will be new and 95% of the deal will be targeted to institutional investors. The company, which is controlled by Hong Kong tycoon and new World Development chairman Cheng Yu Tung, is aiming to launch the roadshow on November 28 and to list on December 15. Deutsche Bank, Goldman Sachs, HSBC and J.P. Morgan are joint global coordinators and bookrunners, while Citi, Credit Suisse and UBS are joining as bookrunners.

Next in line is New China Life Insurance, which is seeking a dual-listing in Hong Kong and Shanghai. The company received approval from the Chinese regulators for the A-share portion yesterday and will seek the go-head from the Hong Kong stock exchange at a listing hearing today. Assuming it is approved, New China Life will start pre-marketing on Monday.

The Chinese insurer said in a draft prospectus posted on the China Securities Regulatory Commission’s (CSRC) website on Friday last week that is aiming to raise about $2.5 billion. The H-share portion will account for just under 70% of the offering pre-shoe, or about $1.7 billion, while the remainder will be made up of A-shares.

Sources say the company is expected to secure a number of cornerstone investors pre-launch, which will help mitigate the large size of the deal. The deal is also expected to come at an attractive valuation versus Hong Kong listed peers like Ping An Insurance, China Life Insurance and China Pacific Insurance Co. However, the company will have to convince investors to put their money to work in a volatile sector that subject to a lot of regulatory concerns. CICC and UBS are joint global coordinators for both the A- and H-share tranche, while Bank of America Merrill Lynch, BNP Paribas, Deutsche Bank, Goldman Sachs, HSBC and J.P. Morgan are joining them as bookrunners for the H-share tranche.

Also seeking to go ahead is Haitong Securities, which is hoping to tap into the positive response to Citic Securities’ $1.7 billion Hong Kong IPO in October. The Chinese brokerage, which is already listed in Shanghai, is expected to raise about $1.5 billion. According to sources it will attend a Hong Kong listing hearing early next week and if successful, it may start pre-marketing mid-week. Citi, Credit Suisse, Deutsche Bank, Haitong International and J.P. Morgan are joint global coordinators as well as bookrunners. HSBC, Standard Chartered, Nomura and UBS are joint bookrunners.

Another potential Chinese issuer that is seeking to raise about $1 billion and may come this year is Vancl Technology, although it is looking to list in the US. The online fashion retailer is being brought to market by CICC, Citi, Credit Suisse, Goldman Sachs and Morgan Stanley.

These big guys may be dominating the headlines, but there are a lot of smaller companies vying investors at the moment as well. This week alone, bankers have started pre-marketing for at least four companies that are hoping to raise between $100 million and $350 million each:

- Sitoy Group, a Hong Kong-based manufacturer of handbags and other leather goods for luxury brands like Prada, Coach and Tumi, is aiming to raise about $130 million. It is reported to have secured cornerstone investments for more than 40% of the deal already from Prada and venture capital firm IDG. The company is being brought to market by Bank of America Merrill Lynch and is planning to launch the roadshow on Monday.

- Charter Group, an operator of high-end department stores in northeastern China, is expected to raise between 250 million and $350 million to fund its continuing expansion into Beijing. The company currently has three department stores, of which one opened just 12 months ago. Its stores are significantly larger and have greater sales revenues per store than the China sector average and count most of the top luxury brands among their concessionaires, including LVMH, Prada, Gucci, Bulgari, Armani and Apple. The company is expected to double its net profit next year to about Rmb600 million ($94 million), supported by the opening of its Beijing store in June. Goldman Sachs and Morgan Stanley are joint bookrunners.

- Risun Holding, a Chinese producer of coke chemicals for various industrial uses is targeting about $150 million. The bookbuilding is expected to kick off on Monday. Goldman Sachs and ICBC International are leading the deal.

- China Polymetallic Mining, a Chinese lead, zinc and silver miner, is aiming to raise between $150 million and $250 million. The company, which is said to have the third largest silver reserves in China, has started mining operations only recently and is still running at low capacity. It received a round of funding from a group of pre-IPO investors, including Deutsche Bank Asset Management, Morgan Stanley Private Equity, Baker Steel and KR Lenders. The bookbuilding is expected to launch on November 28. Citi and Rennaissance Capital are joint bookrunners.

In addition to these, Baroque Japan and Xinyi Solar Glass both started pre-marketing in the middle of last week. Baroque Japan is a Japanese retailer of women’s fashion that has chosen to list in Hong Kong because of its planned expansion in China. It is aiming to raise between $100 million and $150 million with the help of CLSA and UBS. Xinyi Solar is being spun off from Hong Kong-listed Xinyi Glass. It has been forced to cut its fund-raising expectations quite significantly as valuations in the solar power sector have come down substantially this year amid falling prices for solar power panels and other components, and is now seeking to raise only about $150 million. According to sources, the company has chosen to go ahead with the IPO despite the difficult backdrop. The offering is arranged by Citi and J.P. Morgan.

¬ Haymarket Media Limited. All rights reserved.

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