Kinetic Mining starts pre-marketing for Hong Kong IPO

Bankers started investor education yesterday for a Hong Kong initial public offering for Kinetic Mines and Energy, which is seeking to raise about $150 million, according to sources.

The Chinese company, which has a thermal coal mine in Inner Mongolia, plans to sell 11% of its enlarged share capital in new shares, with 90% targeted at institutional investors. The remaining 10% will be offered to Hong Kong retail investors. The company has got a waiver from the Hong Kong stock exchange requirement of a 25% sale because it already has a substantial number of minority shareholders who will count towards the free-float, including some high-net-worth individuals.

The greenshoe may also be smaller than the usual 15%, at about 6% to 7% of the base offer, although a final decision on that has still to be made. According to one source, the reason would be that the company wants certainty on the amount of proceeds. However, another source said Kinetic wants to minimise the number of shares being sold, given the continuously difficult market conditions.

According to the current timetable, Kinetic will kick off an accelerated roadshow on March 13 and the pricing is expected on March 16. The listing is scheduled for March 23. The relatively tight schedule is due to the fact that the bankers have done quite a lot of work ahead of time, including meetings with potential anchor investors, and feel they know where most of the demand will come from, the source said.

The Hong Kong market, which was the world’s biggest destination for new listings in 2011 for the third year in a row, has attracted a number of resources-related companies in recent years. This includes several non-Chinese companies that have been drawn to Hong Kong by its proximity to China, which has exhibited a soaring appetite for energy to match the rapid growth of its economy.

Most recently, Canada’s Sunshine Oilsands last month raised $580 million in the biggest Hong Kong IPO so far this year. Other non-Asian resources companies choosing Hong Kong include: SouthGobi Energy Resources, a Canadian company with coal mining operations in Mongolia; IRC Limited, an iron ore mining company with operations in the far east of Russia; and G-Resources, a greenfield coal miner with operations in Indonesia that listed in Hong Kong through a reverse takeover.

Aside from its thermal coal mine, Kinetic also has mining processing transportation and storage capabilities and is focused on becoming a leading private-sector integrated coal provider in China, another source said. The company started production at the beginning of this year and is now ramping up its output.

Major comparables include China Coal Energy, Mongolian Mining and SouthGobi Resources. In terms of valuations, investors will likely look at these companies on an enterprise value-to-Ebitda or price-to-earnings basis for 2013 and beyond, but it is too early to compare Kinetic with its comps because it has just begun production, the source said. Details on other valuation metrics will become clearer as the investor education progresses, he added.

HSBC is the sole sponsor and global coordinator as well as a joint bookrunner together with UBS.