Maoye and Solargiga set ranges for Hong Kong IPOs

Maoye Department Store aims to raise $905 million as pre-marketing feedback prompts a higher-than-expected valuation, while Solargiga targets $292 million.
The Hong Kong IPO market is starting to pick up pace with no fewer than five companies kicking off their official institutional marketing on Monday or Tuesday this week. Assuming the offerings go according to plan, this should enable them to list before the Chinese New Year holidays which begin on February 7.

Two that are expected to attract a lot of attention are Maoye Department Store, which currently operates 15 department stores and has plans for seven more in the next two years, and Solargiga Energy Holdings, which makes monocrystalline wafers and ingots for solar cells. The two companies are planning to raise up to $1.2 billion between them, but sources say early feedback suggests this wonÆt be a problem as both operate in sectors that are still regarded as ôhotö and fund managers are sitting on a lot of cash that needs to be invested.

Maoye, which is by far the larger of the two, is particularly attractive, they say, given that it is exposed to domestic consumption and should be largely unaffected by a potential economic slowdown in the US.

The positive feedback has allowed the company to pursue a valuation that is slightly higher than what was talked about during pre-marketing and which would have given a base deal size of about $700 million. Based on the HK$4.35 to HK$5.65 price range that was communicated to investors yesterday, however, Maoye is now looking to raise between HK$5.44 billion and HK$7.06 billion ($697 million to $905 million.)

If the 15% greenshoe is also exercised in full, the Goldman Sachs-led deal could fetch as much as $1.04 billion, which would make it the largest Hong Kong IPO so far this year. However, that could soon be surpassed assuming that Macau casino operator SJM goes ahead with its offering which is expected to have a base deal size between $800 million and $1 billion. SJM, which is being brought to market by Deutsche Bank, is due to kick-off its institutional roadshow today.

Maoye is offering 1.25 billion new shares, or 25% of the company. As usual, 10% of the deal has been earmarked for Hong Kong retail investors in a public offering that will open on Friday (January 18), although standard clawback triggers apply and could result in the retail tranche being increased to 50% of the deal in case of strong demand.

The price range values the company at 29 to 37.7 times its projected earnings for 2008 based on pre-shoe numbers. This puts it at a sizeable discount to Parkson Retail Group, which trades at about 45 times this yearÆs earnings, and to New World Department Store China at about 44 times. Parkson and New World are nationwide players, however, and while Maoye has the aspiration to widen its geographical spread to fit into that group, for now analysts say a discount is warranted.

Maoye is also significantly smaller than both Parkson and New World which have 39 and 28 stores respectively. The upper end of MaoyeÆs price range implies a slight premium to smaller regional players Golden Eagle Retail Group and Intime Department Store, which trade at an average 2008 price-to-earnings ratio of 32 times. Golden Eagle has nine stores and Intime five.

As a further sign of the positive response to the deal, the bookrunners have decided to launch the offering without the support of cornerstone investors. This is unusual for a deal of this size, particularly against a backdrop of a highly volatile secondary market. Since mid-November, when the Hong Kong IPO market started to struggle, cornerstones have been included even on deals as small as $300 million to $400 million.

MaoyeÆs final price will be determined after the US close on January 24 and the listing is scheduled for February 1.

Solargiga will also start trading on February 1, as it becomes the first solar power company to list in Hong Kong. The only other alternative energy company to trade in the local market is China High Speed, which makes gearboxes for wind turbines. China High Speed has had a spectacular run since it listed in June with a gain of 149%, which is expected to help attract investors to Solargiga as well û even though it operates in a much more competitive sector and one that continues to be somewhat hampered by raw material shortages.

The company is looking to raise between HK$1.93 billion and HK$2.27 billion ($248 million to $292 million) by selling 25% of its shares. BNP Paribas is the sole bookrunner. Of the 422.7 million shares on offer, 60% are new shares, while the remaining 40% will be sold by its two main owners as well as some minority shareholders. The usual 90-10 split between institutional and retail investors and standard clawback triggers apply.

The offering will be supported by one cornerstone investor in the form of Taiwan-listed Ralec Electronic, which manufactures and sells resistors, electronic parts and materials as well as machinery equipment. The investment is quite small though at only $15 million, which will account for no more than 6% of the total deal at the bottom of the price range.

The shares will be offered in a range between HK$4.57 and HK$5.38, which values the company at about 17.2 to 20.3 times its 2008 earnings. London-listed Renesola, which is viewed as its closest competitor given that it too focuses on wafers and ingots, is valued at about 21 times.

Other comparables include US-listed Yingli Green Energy Holding, which is active throughout the solar power industry, and LDK Solar, which makes wafers, but is a significantly larger company than Solargiga. Yingli trades at a 2008 P/E multiple of about 39, while LDK is valued at about 25 times this yearÆs earning.

Aside from the attraction of being the first solar power company in Hong Kong, one source notes that Solargiga also has among the highest gross margins in the industry at about 33% for the first nine months of 2007. This compares with about 20% for Renesola.

Renesola is also in the market at the moment, attempting to sell about $200 million worth of American depositary receipts that will be listed on the New York Stock Exchange. It is offering a total of 10 million ADRs û each accounting for two shares û at a maximum discount of 10% versus its London-listed shares. At the upper end, the price cannot go higher than a 5% premium to those same shares. Just over 92% of the deal is backed by new shares.

Credit Suisse and Deutsche Bank are joint bookrunners for RenesolaÆs offering, which sources say is expected to close on January 28, followed by a trading debut on the 29th.

Solargiga was started in China by a Mr Tan, but in the middle of last year merged with a subsidiary of Taiwan-listed Wafer Works, which makes silicon wafers for semiconductor and solar power applications among others. Solargiga is currently owned in equal parts by Mr Tan and Wafer Works, but also has a number of small shareholders who received stock in the company in connection with the merger.

SolargigaÆs institutional bookbuilding will close on January 25 and the final price will be fixed after the US close on that same day. The Hong Kong public offering will be open from January 21 to 24.
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