Luye Pharma prices high amid HK IPO flurry

Move follows successful IPOs by Tian Ge Interactive, Beijing Digital Telecom and Beijing Urban Construction. What links these deals? Cornerstone backing.

China’s Luye Pharma Group is set to raise $764 million after pricing an initial public offering of shares in Hong Kong at the top end of its targeted range thanks to heavy investor demand and cornerstone support.

The institutional tranche experienced “double-digit oversubscription,” a banker close to the deal said, describing the book as a mix of long-only institutional investors, sovereign wealth funds and hedge funds. More than 290 institutions participated, the majority located in Asia, bankers told FinanceAsia.  

Retail investors also piled in strongly into the IPO, with demand outstripping the supply of shares available to them by 14.77 times, just under the amount necessary to trigger a clawback, bankers said.  

Luye Pharma priced 999.6 million shares, or 30% of its pre-shoe enlarged capital, at the top end of its initial HK$5.38 to HK$5.92 range.

Strong cornerstone investor support helped close the deal, a trend that appears to be gaining steam in Hong Kong after WH Group’s high-profile flop in April. Value Partners, OrbiMed Advisors, Prime Capital, Trivest Investment, Macquarie Funds and Minmetals Capital pledged a total of $280 million, boosting investor confidence in the company, which sells more than 50 drugs for oncology, cardiovascular, orthopaedic, gastroenterology and central-nervous system patients.

Secondary shares made up 33.2% of the base offering, which will increase to 41.9% of the total deal once the greenshoe option is exercised, a banker close to the deal said.

Selling shareholders include Luye Pharma's private equity backers — CDH Capital, Citic Private Equity and New Horizon Capital — which in 2012 took a majority stake in the-then Singapore-listed company before it was taken private this year. Other selling shareholders include the Government of Singapore Investment Corp (GIC) as well as Chairman Liu Dian Bo.

This final share price values Luye Pharma’s at 26.6 times projected 2014 earnings, a moderate premium to its listed peers Sihuan Pharmaceutical and Sino Biopharmaceutical — which are each trading at roughly 25 times estimated 2014 earnings — but a slight discount to CSPC Pharmaceutical, which is trading at 27.6 times, according to Bloomberg.

Citi, Citic/CLSA and UBS lead managed the deal.

Other deals

Confidence appears to be returning to Hong Kong’s IPO markets after WH Group failed to list, with three other deals being completed this week. The one common theme among all of them? They all relied on cornerstone investor support.

Tian Ge Interactive Holdings, a social video platform operator partially owned by Sina Corp, raised $207.3 million by pricing 304.3 million shares at HK$5.33 a unit, surpassing the initial HK$4.50 to HK$5.30 price range.

Hong Kong retail investors were keen on the company’s story. The retail tranche was oversubscribed 72 times, which allowed the syndicate to trigger the clawback and exercise the greenshoe option of 45.6 million shares.

The strong interest from retail investors was a result of cornerstone investor support. Atlantics Investment Management, Town Health Investment Management and Qihoo 360 Technology Co., among others, promised to invest $80 million at the start of the bookbuild. UBS and CICC oversaw the deal.

Beijing Digital Telecom, one of China’s largest mobile handset and digital product store chains, began taking orders from institutional investors last week, and initially sought to raise $150 million by pricing 166.7 million primary shares at between HK$5.30 and HK$7.10.

This issuer also relied on cornerstone investor support with Lenovo Group, Qihoo 360 Technology, Unicom Innovation Enterprise Investment Co and TCL Communication Technology together pledging $48.8 million.

Yet unlike Tian Ge and Luye, Beijing Digital’s shares wound up pricing at the bottom of the range at HK$5.35, and raised $113.9 million, leaving its 2014 price-earnings ratio at a more modest 8.6 times.

The retail tranche was undersubscribed, according to bankers close to the deal. But the issuer and banking syndicate supporting the IPO still managed to complete the deal, with sovereign wealth funds, hedge funds and long-only institutional investors buying up the remaining shares. Over half of the institutions were located in Asia, a banker said.  

Citi and UBS lead managed the deal, with DBS and Standard Chartered handling bookrunning responsibilities.

In other deals this week, Beijing Urban Construction Design & Development Group raised $119.7 million by pricing some 337.3 million shares at HK$2.77 a unit, at the bottom end of its initial HK$2.75 to HK$3.30 price range. This final price values Beijing Urban Construction at 8 times estimated 2014 earnings.

Again, Beijing Urban Construction had strong cornerstone support, securing $70 million combined from CSR Hong Kong, Beijing Capital Land, Beijing Capital Company, Beijing Enterprise and China Construction Investment.

Bankers said there was enough institutional demand to make up the rest of the book, with allocations skewed towards long-only institutional investors. The top-five investors made up half of the book, and the top-10, 70%, a banker close to the deal said.

The retail tranche was undersubscribed, accounting for only 39% of the book, he added. 

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