Hong Kong's first post-summer IPO draws sizeable crowd

Sportswear manufacturer and distributor Win Hanverky raises $88 million after fixing the price 25% below the top end.
Win Hanverky Holdings has set the Hong Kong IPO market off to a good start after the summer lull with a deal that received strong support from both institutional and retail investors.

The company may also have ensured a good aftermarket performance by fixing the price 25% below the top end of the range despite sources saying there was very little price sensitivity in the book.

However, at HK$684 million ($88 million) some bankers argued that the offer was too small to be much of an indication for other deals in the pipeline. China Merchants BankÆs H-share IPO - that is expected to fetch about $2 billion through an offer that will open next week - will be a better test of sentiment, they say.

The Hong Kong-based manufacturer and distributor of sportswear was the first company to complete an IPO of size in Hong Kong since property developer China Greentown raised $344 million in early July and seemingly timed it well as the final two days of bookbuilding coincided with a 362-point gain in the Hang Seng Index.

Win Hanverky offered 300 million new shares, or 25% of its capital, at between HK$1.98 and HK$2.38 and ended up fixing the price at HK$2.28. One source said the company felt it wanted to leave some extra upside for investors as it wasnÆt in crucial need of the money, but the fact that 228 is an auspicious number û pronounced in Chinese it sounds the same as saying ôget rich easilyö û likely also played a role in the decision to price that much below the top.

Prior to the IPO, the company was 61% owned by its Chairman, Roy Li and Deputy Chairman and CEO, Lai Ching Ping, who co-founded the business more than 20 years ago.

DBS Vickers Securities was the sole bookrunner for the offering.

The final price values the company at 11.3 times its 2005 earnings and at 9.1 times its projected 2006 earnings. That puts it at the upper end among mainland textile companies which tend to trade at forward PE multiples between seven and nine. Shenzhou International, another garment manufacturer, trades at a forward PE of about 10 times after gaining 29% since its trading debut in November 2005.

The offer came at a significant discount to athletic shoe manufacturer Yue Yuen International, however, which according to market watchers was reasonable given the size difference between the two. While not entirely in the same business, both companies do target the same customer groups.

The institutional portion of the deal was more than 30 times covered pre-clawback, while retail investors ordered more than 350 times the 30 million shares earmarked for them. Because of the strong demand, the retail tranche will be increased to 50% of the total from the initial 10%.

A manufacturer on an OEM-basis for global brands such as Adidas, Reebook, Umbro and Diadora, Win Hanverky believes it is in a good position to capture the growth in the sportswear market ahead of the 2008 Beijing Olympics.

Its manufacturing business, which including a smaller OEM business for active and outerwear, accounts for about 80% of total revenues. Additionally, the company also has the exclusive distribution rights for Umbro in China. And its jointly controlled company Win Sports is the exclusive distributor in Greater China of sportswear and accessories for Manchester United, Barcelona, Juventus and Paris St Germain football clubs.

The company will use about HK$250 million of the net proceeds to beef up its distribution business, while around HK$160 million will be used to expand production capacity in Vietnam and the Philippines.

While perhaps not the best gauge for the market as a whole, Win HanverkyÆs hefty oversubscription rate is likely to encourage the numerous other small- to medium-sized IPOs that are expected to flood the market in the coming two months.

Next week should see at least one other retail sector offering after a source said Beijing Jingkelong passed its listing hearing last night. The Beijing-based operator of super and hyper markets, which is seeking about $80 million, had initially planned to come to market in May, but was forced to interrupt its pre-marketing efforts after the stock exchange expressed concern about some disclosure-related issues.

Win Hanverky will start trading on September 6.

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