China Kingstone Mining, a Sichuan-based marble mining company, has raised HK$1.3 billion ($167 million) in Hong Kong’s first initial public offering this year.
Sources said that market demand for the offering was decent, with more than 100 institutional investors from Asia-Pacific, Europe and the US taking part in the deal. Around 70% of the orders came from roughly 15 big-name firms.
The company has only had a permit for its Zhangjiaba mine since August 2009. “That led some investors to raise questions about the execution risk,” said a source. “When a company has earnings that progressively double each year for the next three years, there’s a lot of work that needs to be done.”
However, the support of five cornerstone investors who are all active in the real-estate sector helped win some much-needed confidence. In total, they committed $48 million with a six-month lockup. Chow Tai Fook, a Hong Kong jewellery retailer; real estate tycoons Li Sze Lim, chairman of Guangzhou R&F Properties; Hui Ka Yan, chairman of Evergrande Real Estate Group; and Bondic International, the investment arm of CC Land, each committed to buy $10 million of shares, while Gold Mantis Construction Decoration, a Chinese decoration company, agreed to put up $8 million.
One of the cornerstones, Guangzhou R&F Properties, is an existing customer of Kingstone.
The company fixed the share price at HK$2.25, the bottom of an indicated range that went up to HK$3.35, in a bid to ensure good secondary-market performance. Based on the company’s 2012 forecast earnings, the final price pitched Kingstone at a price-to-earnings (P/E) ratio of 4.8 times, which is a deep discount compared to Hong Kong-listed cement companies that are trading at an average 2012 P/E of 9.4 times. Construction materials companies are quoted at an average of 9.8 times, according to bankers.
Kingstone offered 29% of its enlarged share capital, or 580 million shares, 86.2% primary and 13.8% secondary. Ninety percent of the shares were offered to international investors, while the remaining 10% have been earmarked for the Hong Kong retail offering.
The deal comes with a 15% greenshoe option that, if fully exercised, will allow the company to raise up to HK$2.2 billion by selling an additional 87 million new shares.
The trading debut is scheduled for March 18. Citi is the sole global coordinator and bookrunner for the deal.
Kingstone plans to use 70% of the proceeds from the offering to increase its capacity and 20% to expand its distribution channels. The company currently owns and operates one marble mine, Zhangjiaba, which is the largest beige marble mine in China, according to its IPO prospectus.