Liansu raises $250 million, while WWTT withdraws IPO

The increasingly selective approach by investors also works in favour of Sino Biopharmaceutical which is able to raise $144 million from an upsized placement earlier this week.

Offering further evidence that investors are becoming more selective and cautious amid the continuing volatility in global markets, there were mixed results for three equity deals in Hong Kong this week.

China Liansu managed to sail through after pricing its initial public offering at the bottom of an indicated price range that represented a valuation below the industry average. The plastic pipe company's business, which bankers describe as "down-to-earth old fashioned", helped attract investor interest to the IPO, sources said. However, World Wide Touch Technology (WWTT), a touch-pad maker, scraped its planned IPO, citing "weak market sentiment" even though it was in the market at the same time as Liansu.

A more positive sentiment also prevailed for a 2.5-hour placement by Sino Biopharmaceutical on Tuesday. Strong demand from institutional investors prompted the manufacturer and distributor of drugs in China to increase the size of the deal by 20%.

Companies that come with safe-bet "old fashioned" businesses and attractive prices and valuations tend to be more appealing than those that don't, sources say.

Liansu raised HK$1.95 billion ($250 million) after selling 750 million shares, all primary, at HK$2.60 apiece -- the bottom end of a range that extended to HK$3.50. The price represents a price-to-earnings (P/E) ratio of six times, based on the company's 2010 projected earnings, which is significantly lower than the industry average of 10 to 12 times.

Investors are interested in the stock because of the company's down-to-earth businesses with a macro theme behind them, and its leading position in the market, according to a banker involved in the deal. "The price is considered cheap by some people," he said.

Based in Southern China's Guangdong province, Liansu produces plastic pipes for water supply and drainage. The offering, arranged by J.P. Morgan and UBS, accounted for 25% of Liansu's enlarged share capital and came with a 15% greenshoe option. The shares will start trading on June 23.

WWTT, which makes capacitive touch pads that convert finger touch into position information for further processing, was offering 861 million shares, or 30% of the company, at a price between HK$1.30 and HK$1.70. This would have allowed it to raise between HK$1.11 billion and HK$1.46 billion, had the deal been successful. Credit Suisse and ICBC International were joint global coordinators and joint bookrunners for the transaction.

"In light of the weak market sentiment, and with investors' best interests in mind, the company and the selling shareholder ... have decided not to proceed with the global offering under the original timetable," WWTT said in a filing to the Hong Kong stock exchange yesterday.

Hong Kong-based WWTT is the second company to cancel a Hong Kong IPO in the past week. Last weekend, wind turbine manufacturer Xingjiang Goldwind Science & Technology scrapped its share sale of up to $1.2 billion, also blaming market conditions.

Sources familiar with the situation said WWTT will come to market again once things improve.

WWTT and Liansu both kicked off institutional bookbuilding on June 7 and were both scheduled to price on June 14.

Meanwhile, Sino Biopharmaceutical and its shareholder Conspicuous Group raised HK$1.12 billion ($144 million) after selling 335 million shares at HK$3.35 apiece in a 2.5-hour placement on Tuesday afternoon.

The final price represented an 8.97% discount to the stock's midday closing price of HK$3.68 and was near the low end of the indicated range of HK$3.32 to HK$3.50. The price range translated into a discount of 4.9% to 9.8% versus the latest market price.

"The (order) book was well oversubscribed even after the deal was upsized. Investors are focused on domestic consumption and domestic growth in China," one source said, noting that the healthcare industry fits in well with that theme.

A total of 285 million shares were initially on offer, of which 185 million were primary. The other 100 million were existing shares sold by Conspicuous, which will have a 90-day lockup on its remaining shares in the company. The deal was launched at 2.30pm after the shares were suspended from trading and the book was well covered in less than two hours, prompting the sale of an extra 50 million secondary shares.

The upsized deal represented about 7% of the existing share capital and 6.8% of the enlarged share capital. There was a good mix of investors, but the majority of the demand came from long-only funds, including China-focused ones. Some hedge funds and high-net-worth individuals also participated in the deal, sources said. Given the timing of the deal, most of the demand came from Asia with some additional buying from Europe.

Proceeds from the transaction will be used to finance possible future acquisitions and for general corporate purposes. The deal was handled by J.P. Morgan and Morgan Stanley.

The drug company's shares resumed trading yesterday (Wednesday was a holiday in Hong Kong) and fell 8.7% to a close of HK$3.36 -- just above the placement price. The stock had gained 47.2% this year before the placement. 

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