Initial public offerings from Hong Kong have begun to pick up speed again following the completion of a string of jumbo offerings over the past month.
Investors receptivity towards deals from China Huarong Asset Management and China Reinsurance shows that demand is reviving after the summer rout, although much of it has come from Chinese cornerstone investors and the deals have generally not performed well in the secondary market with the exception of CICC’s flotation, which has risen 9.1% from its IPO price.
However, at least six IPO candidates have decided to brave the markets before year-end, with four companies embarking on pre-marketing this week and two in the middle of management roadshows.
China Energy Engineering
The biggest prospective IPO is coming from China Energy Engineering, which has started premarketing a deal that will raise about $2 billion.
One source close to the company said the syndicate has assigned a fair value range of HK$58 billion to HK$77 billion ($7.5 billion to $10 billion), equating to a forward p/e of 10 to 13.3 times earnings.
China Energy is the largest contractor in the power construction industry by contract value and is a rival to Shanghai-listed Power Construction Corp of China, which specialises in the hydro sector.
Power Construction Corp is currently up 9.37% year-to-date and trading on a 2015 p/e around the 15 times level. It has been on a rising trend since late August.
According to market research company Frost & Sullivan, China Energy had a dominating 81% market share in fossil-fuel power projects in 2014, but is reducing its investment in the sector now the Chinese government is prioritising cleaner energy sources.
Instead, it is increasing its focus on the construction of ultra-high-voltage electricity transmission lines, which facilitate electricity supply to remote areas. This is particularly crucial for China given its vast land area, which makes conventional power transmission difficult and inefficient.
At the same time China Energy is also diversifying into the construction of new energy (wind and solar) as well as nuclear plants.
CICC and Citic CLSA are joint sponsors of the deal.
Bank of Qingdao
Meanwhile, regional commercial lender Bank of Qingdao started gauging investor interest for a $600 million IPO on Monday, adding yet more paper from the financial services sector.
Bankers said one of the deal’s selling points is the fact that the Shandong province-based lender is geographically important to China’s One Belt, One Road initiative.
The eastern city of Qingdao is a starting point for a number of major routes proposed under the programme, including the New Eurasian Land Bridge Economic Corridor, which connects eastern China to central Europe.
Corporate banking was the bank’s largest income source and accounted for 54.5% of total operating income in the first half of the year. However, the lender has set sights on expanding its retail banking by growing its residential mortgage and credit card businesses.
Similar to many other banks, Bank of Qingdao intends to use the IPO proceeds to strengthen its capital base amid tightening bank capital requirements.
At the end of 2014 it reported net income of $234.7 million on assets of $24.51 billion
Citic CLSA and Goldman Sachs are joint sponsors of Bank of Qingdao IPO.
Other companies currently sounding out investors also include: Hong Kong-based medical clinics operator UMP Healthcare; video surveillance solution provider UNV Digital Technologies; solar glass manufacturer Flat Glass Group and property management company Zhong Ao Home Group.
