The spin-off from Hong Kong-listed Kingboard Chemicals had been expected to raise about $400 million. The sharp increase, according to a source familiar with the offering, was prompted by the surge in the share price of Kingboard Chemicals over the past three weeks and, since the listing candidate is hoping to price at a premium to its parent, its price has been driven higher too.
ôLaminates has better growth and higher margins than the parent and also better visibility with regard to that growth,ö one observer says about the hoped-for valuation premium. ôThe company is a global leader in its field and the management has managed it well through the cycles in the past. The organic growth rate is about 20% per year and that is something which it is expected to sustain,ö he adds.
The larger deal size will be a big boost for Goldman Sachs, which is the sole bookrunner for the IPO and which is looking to secure its position at the top of the ECM league tables for Asia ex-Japan. The US investment bank has led the tables throughout the year, but has seen UBS closing in as the year draws to a close. As at the end of last week, $1 billion worth of league table credits separated the two banks, and the potential of KingboardÆs offering size doubling could settle the score in GoldmanÆs favour.
Together with CICC, Goldman also launched the IPO for China Communications Services yesterday, which is aiming to raise between $259 million to $325 million. That offering, which is a spin-off of China TelecomÆs engineering and technical services unit, will run parallel to KingboardÆs with the final pricing due on November 30 and the trading debut scheduled for December 7.
Kingboard Laminates is offering 25% of its share capital, or 750 million shares, at a price between HK$5.97 and HK$7.73. At those prices, the total deal size will range from $575 million to $745 million and including the greenshoe it could increase to a maximum $819 million. The greenshoe amounts to only 10% of the base deal size compared with the usual 15%.
The indicative price range values the company at between 9.7 and 12.6 times its estimated 2007 earnings, which compares to about 11 times for its parent.
Kingboard ChemicalsÆ share price has rallied 12.6% since the beginning of this month when it published details of the planned spin-off. Yesterday, it gained 1.14% to HK$31.15, while the Hang Seng Index slid 1.2%. The index, which finished at a record high of 19,182 points on Friday, has also had a strong run, however, and has recorded losses in only three sessions during the past three weeks.
Kingboard ChemicalsÆ gains have been underpinned by the early November announcement which noted that Kingboard Laminates is expected to post a net profit of at least HK$1.62 billion for the full year 2006, marking a 50% increase from 2005.
Of the total amount of shares on offer, 80% will be existing shares sold by the parent, while the remaining 20% will be new. The offer will set aside 10% for retail investors and another 5% for Kingboard ChemicalsÆ existing shareholders. The remaining 85% will be sold to institutional investors.
The company makes rigid laminates for use primarily in low-end electronic products like toys and clock radios and is seen as a key beneficiary as this industry continues to gather pace. The company currently has a 30% share of the Mainland market for such laminates and a 10% global market share, which it is aiming to grow in coming years.
Underpinning the companyÆs market position is the fact that it also produces a lot of the components and raw materials that go into the laminates, which ensures it has a steady supply of these materials even at times of shortage.
While the companyÆs business is regarded as less sexy than current hot retail concept stocks, Kingboard is a well-known name in Hong Kong and according to sources the offer has attracted good feedback. Many existing shareholders of the parent are also looking to buy into the new company to capture its stronger growth potential. Among international investors, though, the deal could be a tougher sell, especially with so many other offers currently in the market.
ôThe key challenge will be to attract attention to the deal given the large IPO pipeline and some emerging investor fatigue because of the many block trades that have been done in the Hong Kong market in recent weeks,ö says one observer. ôInvestors have also had a pretty good year and want to make sure they donÆt buy anything now that will depress their portfolio.ö
Separately, China Communications Services set the price range for its offer at HK$1.56 to HK$1.96 per share, which will value the company at 9.68 to 12.16 times its projected 2007 earnings. It is offering 1.29 billion new shares, or 24.6% of the company, plus a 15% greenshoe.
Cisco Systems and International Data Group have committed to subscribe to $60 million worth of shares in the IPO, or about 18%-23% of the total deal size depending on the final price. While owned by China Telecom, CCS provides services to other telecom companies as well, including China Mobile, China Unicom, China Netcom and China Railway Communications Group.
Post listing, China Telecom will own 58.8% of the company while China Mobile will have a 9.7% stake and China Unicom will hold 4.4%.