Hong Kong listings called off, while Amtek cuts IPO size

Bluestar Adisseo and Datang's renewable power unit both scrap their Hong Kong listing plans as the market turns more volatile and risk appetite drops.

A modest rebound in the Hong Kong stockmarket yesterday wasn’t enough for two listing hopefuls that have called off their plans citing the increasingly volatile markets.

Immediate concerns about escalating tensions on the Korean peninsula eased off somewhat yesterday as the day passed without any further incident, but investor risk appetite appears to have waned significantly – resulting in less interest in primary market deals, both equity and debt.

With only a few weeks to go before Christmas and worries about the Ireland debt crisis and monetary policy tightening in China already crippling the global markets, many investors are asking themselves whether they really need to take on additional exposure at this point. And North Korea’s unexpected shelling of a South Korean island on Tuesday may have convinced them to take a step back for the time being.

“There is still a lot of cash out there, but people are starting to become more careful about their numbers for the year,” said one banker, who noted that investors have also lost money as some of the recent IPOs have traded down in the secondary market, and would not want to repeat that in the final few weeks of the year. At the very least, they are likely to get more selective.

Among the casualties of that selectiveness was Bluestar Adisseo Nutrition Group, one of the global leaders in feed additives for livestock, which said yesterday that it had decided not to proceed with its initial public offering “in light of the deterioration in market conditions and the continued and excessive market volatility”. The company, which was being brought to market by Deutsche Bank and Morgan Stanley, was set to fix the IPO price early yesterday and was scheduled to start trading in Hong Kong on November 30.

It was unclear whether the deal was fully covered or not, but there had been rumours that it was struggling as the market took a turn for the worse. In the eight days that Adisseo was on the road, the Hang Seng Index fell 7.3%, including a 2.7% drop on Tuesday.

Also yesterday, China Datang Corporation Renewable Power, the green energy unit of the country’s second-largest power producer China Datang Group, postponed its Hong Kong listing plan amid fears of wobbly markets. Datang was still doing investor education and hadn’t yet set a price range, but was expected to raise up to $1 billion. It had been due to start bookbuilding this week.

“Datang made the decision itself. It is not confident with the current market and it is not desperate for cash,” a source familiar with the situation said.

Meanwhile, in Singapore, Amtek Engineering downsized its IPO after the institutional demand was deemed to be insufficient. According to a source, there were enough orders to cover the base deal, but not to also allocate the greenshoe. And given the market environment, the bookrunners didn’t want to go ahead without a shoe as that would have deprived them of the ability to help stabilise the stock in the secondary market.

So, they chose instead to reduce the base deal to $200 million from $250 million, which allowed them to allocate a 15% greenshoe. If the shoe is fully exercised the final deal size could rise to $230 million. In light of the modest institutional demand, the company also scrapped the 20% upsize option and increased the retail tranche to 10% from 5%.

Amtek, which provides end-to-end design and manufacturing solutions for precision metal, plastic and rubber components and casings, is due to start trading on December 1. The IPO is being arranged by Credit Suisse, Morgan Stanley and Standard Chartered.

One of the concerns investors had was that all the 200 million shares that comprised the base offering were secondary, which obviously begs the question of why this is a good time to buy when the original shareholders are divesting. The shares were sold by an entity owned by Standard Chartered Private Equity, CVC Capital Partners and the company management, which teamed up to buy the company in 2007. At the time of the listing, Standard Chartered Private Equity and CVC will each own 28.3% of the company, while the management will hold a combined 5.3%. Shareholders who participate in the IPO will own 36.8%.

The IPO price was fixed at the bottom of the S$1.30 to S$1.60 for a total deal size of S$260 million ($200 million). The final price values the company at 8.3 times its 2011 earnings.

Datang had planned to sell 7.1 billion shares in its Hong Kong IPO, with 95% targeted at international investors the remaining 5% earmarked for retail investors. The deal had a 15% greenshoe option and the company was planning to use the proceeds to fund the construction of its wind power projects, to purchase wind turbines, and to repay bank loans.

The listing was scheduled for December 9. Credit Suisse, J.P. Morgan, Macquarie and UBS were the joint bookrunners.

Also in the market at the moment is Datang’s domestic peer, Huaneng Renewables, which is the wind-power unit of one of China’s largest state-owned power producers, China Huaneng Group. Huaneng is seeking to raise about $1.5 billion and yesterday sources said that it intended to push ahead with its listing plan for now – the hope being that Datang’s decision to postpone will make more investors turn their attention to Huaneng.

Huaneng is due to start the institutional bookbuilding on Monday, which would allow for a trading debut in the middle of December. However, people involved in the deal said they might need to move the transaction to next year if the market condition deteriorates further. Huaneng’s IPO is lead by China International Capital Corp, Goldman Sachs, Macquarie and Morgan Stanley.

The cancellation of Adisseo’s and Datang’s offerings comes after Chinese luxury developer CJ Land earlier this month pulled its Hong Kong IPO of up to $618 million amid worries about the impact of Beijing's tightening policies on the country's ailing housing market. Like Adisseo, Shanghai-based CJ Land had completed the entire roadshow and was due to fix the price when it announced it had decided to pull the deal. The IPO was being arranged by Bank of America Merrill Lynch, BOC International, Citi and Macquarie.

Some market watchers predict there will be more companies scrapping their IPOs in the coming weeks, while issuers with an urgent need for cash may need to offer their shares at greater valuation discounts to their peers and keep their fingers crossed.

Still, it is not all doom and gloom in the IPO markets. Goodbaby International Holdings, a Chinese producer of children’s products such as strollers, gained 18.4% in its trading debut in Hong Kong yesterday after being up as much as 25.9% intraday. This prompted the company to exercise its 15% greenshoe in full after the market closed, increasing the size of its IPO to $218 million.

Goodbaby had already priced its IPO at the top of the offering range after drawing strong demand. The retail tranche was almost 1,460 times subscribed, freezing $27.7 billion of retail cash and making it the most heavily oversubscribed offering in Hong Kong this year. Morgan Stanley was the sole bookrunner.

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