Midas gains on SGX ahead of Hong Kong debut

The share price has increased 7.3% since its Hong Kong offering price was fixed at HK$5.43 last Tuesday.

Singapore-listed Midas Holdings, which raised HK$1.19 billion ($155 million) from a share sale in Hong Kong last week, has resumed its upward momentum ahead of its Hong Kong listing today, suggesting investors are confident that China’s rapidly expanding infrastructure build-out will benefit the Chinese railway product supplier.

Midas manufactures aluminium alloy extrusion products which are primarily used for high-speed trains and metro-train car bodies. Last year it had a 66% domestic market share within this industry.

Midas's share price has gained 7.3% since its Hong Kong offering price was fixed at HK$5.43 last Tuesday (September 28). The final price is equal to about S$0.93 per share and represents a 7% discount to the company’s closing price on the Singapore Exchange (SGX) on September 27. The stock closed at S$1.03 yesterday.

The rally in the Singapore-listed shares gives some relief to bankers involved in the deal who had strived to keep existing investors in Midas interested in the company, and at the same time, attract as many new investors as possible into the Hong Kong deal by offering some upside in the pricing of the new shares.

This can be a tricky task and many Singapore-listed companies that plan a Hong Kong share sale will first de-list their shares from Singapore prompted by fears that a secondary listing may dilute the price and investor appetite for their existing shares.

It has worked well for Midas so far as the stock soared in Singapore following the company's announcement of a Hong Kong share sale. Having traded at an average price of S$0.93 in the three months before the roadshow, the stock jumped 15% to S$1.07 on September 21 – the day the bookbuilding started. The share price fell 10% during the one-week bookbuilding, but has regained most of those losses after the Hong Kong offering price was fixed.

Midas estimated the net proceeds from the Hong Kong share sale at HK$1.12 billion. It sold 18.57% of its enlarged share capital, or 220 million new shares, of which 90% were earmarked for institutions and 10% for Hong Kong retail investors. The deal came with a 15% greenshoe option which, if fully exercised, could allow the company to raise up to $178 million.

Retail investors applied for 4.1 times the 22 million shares available to them, the company said in a statement to the SGX yesterday.

The institutional tranche was multiple-times covered, with most demand coming from Asia, supported by a couple of sizable orders from the US and one from Europe. The buyers included existing shareholders who participated to prevent their holdings from being diluted, and the demand was split equally between existing and new investors, a source said. About 50% to 60% of the demand came from long-only funds, 25% from hedge funds, the remainder from private banking groups and other investment firms, the source said.

Based on projected earnings for 2011, Midas's final price translated into a price-to-earnings (P/E) ratio of 15.6 times. Hong Kong-listed China Railway Construction Corp is currently trading at 14 times 2011 earnings.

Investors are interested in the stock because Midas provides an opportunity to directly invest in China's railway industry. Not that many stocks have the exposure to that industry, which is set to benefit from the growing demand for metro and high-speed trains, the source said.

China’s ministry of railway plans to invest Rmb2 trillion ($300 billion) from 2011 to 2015 to expand its railway system with an emphasis on the development of metro and high-speed rail lines. The country also plans to build 40,000 kilometres of new railway tracks between 2008 and 2020.

The Hong Kong share sale and listing is arranged by CCB International, Credit Suisse, and J.P. Morgan.

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