The company is seeking to raise up to HK$1.77 billion ($227.5 million) through the sale of 1.07 billion new H shares, or 33% of the issued share capital at a price of HK$1.20 to HK$1.65 per share.
On the eve of the launch of the retail portion of the deal today (March 21) the institutional book is said to be already covered, despite being opened only three days after the beginning of pre-marketing.
The state-owned enterprise passed the listing hearing as recently as March 9, but bookrunners Morgan Stanley and BOC International decided to speed up the offering process in order to get the deal launched before the end of March. In doing so, they avoid having to include full-year financial data in the listing documentation, which would likely have resulted in a delay until late May or June. The prospectus now includes financial data up until the end of September 2005.
A Hong Kong IPO typically takes about five weeks from listing approval to trading debut, including two weeks for pre-marketing, two weeks for the institutional roadshow and retail offering and another week to allocate shares before the listing. Hunan Nonferrous, on the other hand, aims to have its deal done and dusted in three weeks with the pricing expected on March 24 and the trading debut scheduled for March 31.
The price range values the company at 7.3 to 10.1 times projected 2006 earnings, which is slightly cheaper than other Hong Hong-listed metals producers at the low end of the range. Hunan Nonferrous also plans to distribute 30% of its net profit to shareholders, which will give a dividend yield of about 3.4% at the mid-point of the range.
As of the close of trading yesterday (March 20), Aluminum Corp of China (Chalco) was quoted at 9.7 times 2006 earnings, while Jiangxi Copper was trading at 9.7 times.
In terms of global cement carbide comparables, analysts are looking at Swedish-based Sandvik and US-based Kennametals, while Canadian tungsten processing company North American Tungsten is providing some guidance further up the value chain. According to syndicate estimates, that group is trading at an average 2006 P/E of about 11.1 times.
The entire metals sector has had a strong run so far this year as metals prices have continued to hit new highs. In Hong Kong, Chalco is up 35% and Jiangxi Copper has gained 51%.
ChinaÆs huge appetite for metals in general is said to be one of the key reasons why investors are interested in the company, although beneath the surface, Hunan Nonferrous also has a strategically strong position as ChinaÆs largest producer of tungsten, one observer said.
Hunan Nonferrous is a vertically integrated producer of tungsten, which it uses to make cemented carbide, or hard metals, which is then made into drilling and stone cutting tools for the mining and geological industries. It is also active within smeltering and refining of lead and zinc and produces antimony - a semi-metal that is used to increase the hardness and mechanical strength of lead and is increasingly used within the semiconductor industry.
China Nonferrous controls about 15% of the global reserves of the tungsten and China also has the largest reserves of the metal tungsten in the world and is very focused on seeking to manage that supply in order to control the pricing, he added.
ôTungsten and antimony may not be so well known, but lead and zinc are more easily understood and most of the companyÆs metals have a wide range of usages,ö said the director at a local brokerage, who expected retail demand would be as strong as for the recent offerings of Golden Eagle Retail Group and China National Building Materials.
Both of those saw the retail portion several hundred times oversubscribed, which reduced the institutional portion of each deal to 50% from an initial 90%.
One of the key concerns is that the company isnÆt fully integrated with regard to zinc and lead and still needs to source part of its raw material from other companies. This is impacting negatively on its profitabilty and the company is planning to use about half of the IPO proceeds to acquire mining rights with the aim of becoming more self-sufficient, people familiar with the issue said.
The acquisition of mining rights also weighed on the companyÆs earnings last year when net profit fell to Rmb450 million from Rmb555 million in 2004. The company also had to pay a cash compensation to investors in the fourth quarter 2005 as one of its subsidiaries converted its non-tradable shares into tradable ones.
According to fund managers the net profit is projected to return to about Rmb555 million this year.
In the first nine months last year the company recorded revenues of Rmb6.4 billion ($797 million), compared with Rmb7.3 billion in 2004.
About 19% of the revenue in the latest period was generated from the metal concentrates division, i.e. the mining of tungsten, antimony, lead and zinc. Smelted non-ferrous metal products accounted for 53% and value-added end-products, including cemented carbide and the tools produced from it, made up 28%.
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