Huaneng Renewables Corporation, the wind power unit of China’s largest power producer China Huaneng Group, scrapped its $1.3 billion Hong Kong initial public offering yesterday, citing unfavourable market conditions.
The cancellation came as a surprise as Huaneng was believed to have better selling points and stronger earnings prospects than domestic competitor China Datang Corporation Renewable Power, which was in the market at the same time.
Datang had seemingly no issues with the market conditions and raised HK$4.99 billion ($644 million) after pricing its IPO at the bottom end of the indicated range yesterday.
Huaneng is the 10th Hong Kong IPO to be called off this year, according to Dealogic, as investors have become increasingly cautious amid concerns about Chinese tightening measures and the debt crisis in the eurozone. In November alone, three companies – CJ Land Holdings, Bluestar Adisseo Nutrition and EuroSibEnergo -- which were seeking to raise a combined $3.3 billion, all postponed their planned IPOs.
However, this doesn’t affect Hong Kong’s position as the world’s hottest IPO market in 2010. In the first 11 months of the year, a total of $51 billion was raised through IPOs in Hong Kong, representing an increase of 113% from $24 billion in the same period last year. By comparison, the US -- a long-term champion for new listings – has seen $42 billion of IPOs so far this year.
Huaneng kicked off the bookbuilding on November 29 and was scheduled to price its offering last Friday. But yesterday it announced there had been a change of plan.
“In light of the change in market conditions and recent unexpected and excessive market volatility, the company has formed the view that it would be inadvisable to proceed with the global offering at this time,” the company said in a statement to the Hong Kong stock exchange.
Huaneng was looking to raise between HK$7.4 billion and HK$9.9 billion ($965 million to $1.28 billion) through the sale of 2.49 billion shares at HK$2.98 to HK$3.98 apiece.
The price range translated into a price-to-earnings (P/E) ratio of 14.7 times to 19.6 times, based on the company's forecast earnings for 2011. This compares with a 2011 P/E ratio of 13.1 times to 17.9 times for Datang, based on its price range, making it about 8% to 10% cheaper than Huaneng.
Huaneng had the support of six high-quality cornerstone investors, which had agreed to buy $160 million worth of shares in the deal. Among them, State Grid International Development, the investment arm of State Grid Corporation of China (SGCC), had agreed to invest $60 million. SGCC is China's largest utility company and the largest customer of the country's wind power companies.
Temasek Holdings had agreed to invest $50 million; and Bank of China International, a major lender to Huaneng group, said it would purchase $30 million worth of shares; while US private equity investor Wilbur Ross and China Chengtong Holdings, a Chinese infrastructure and logistics company, were to invest $10 million each in the IPO.
Huaneng planned to use the proceeds to expand its wind-power business, repay bank loans and acquire wind power projects in China and overseas. The deal was managed by China International Capital Corp, Goldman Sachs, Macquarie and Morgan Stanley.
Meanwhile, Datang sold 30% of its enlarged share capital, or 2.14 billion new shares, at HK$2.33 per share. The shares were offered at a price between HK$2.33 and HK$3.18 each. The group plans to use 70% of the proceeds for the construction of wind power projects and to repay bank loans.
It too had attracted demand from six cornerstone investors, which bought a total of $250 million worth of shares. At the final price, their contribution accounts for 38.8% of the total issue. Four key investors committed $50 million each to the offering, including: a wholly owned subsidiary of Aluminum Corporation of China; Angang Group Hong Kong, the international trade unit of steel producer China Angang Group; China Yangtze Power, a hydro power producer; and State Grid International Development. Hero Asia Investment, a wholly owned subsidiary of wind farm operator Longyuan Power, bought $30 million worth of shares, and investment firm High Action took $20 million.
Datang initially postponed the deal, but decided to return to the market a week later. It eventually kicked off the bookbuilding on December 2.
Its trading debut is scheduled for December 17. Cinda International, Credit Suisse, Everbright Securities, J.P. Morgan and UBS were joint bookrunners for the deal.