Increasing vigilance among investors has made recent issuers fix their IPO prices towards the low end of their indicated ranges to attract enough interest. The latest company to do so is Chinese upstream oil company MIE Holdings Corporation, which raised HK$1.125 billion ($145 million) after pricing its shares right at the bottom of the offering range.
The company had the potential to price higher but wanted to ensure that all investors, particularly some top-tier institutional accounts, remained in the order book, according to sources.
Last week, China ZhengTong Auto Services priced its Hong Kong initial public offering below the mid-point of the indicated range to raise $470 million, even after the company impressed investors with its strong growth story. And Sateri Holdings, a manufacturer of dissolving wood pulp which is set to benefit from the growing bilateral trade between China and Brazil, raised $430 million after pricing its shares at the bottom of the range.
MIE sold 662 million shares at HK$1.70 apiece, which compares with an indicated price range of HK$1.70 to HK$2.16. Based on the company’s forecast earnings for 2011, the final price corresponded to a price-to-earnings (P/E) ratio of 7.47 times. The initial range valued the company at up to 9.5 times next year's earnings.
The deal consisted of 66.7% primary shares and 33.3% secondary shares. About 90% was targeted at institutional investors, while the remaining 10% was earmarked for Hong Kong retail investors. The deal comes with a 15% greenshoe option which could increase the size to as much as $167 million, if fully exercised.
MIE received a commitment of $30 million from two cornerstone investors before launch. Atlantis Investment Management, an independent investment firm, agreed to subscribe to $20 million worth of shares, and China Huadian Capital, a wholly owned subsidiary of China Huadian Group, said it would invest $10 million in the deal.
China’s oil and gas industry is dominated by PetroChina, China Petroleum and Chemical Corp (Sinopec) and CNOOC, the top three national oil companies. Independent upstream oil producers like MIE currently command an insignificant market share, but are increasingly participating in the country’s oil and gas industry, the company said in its IPO prospectus.
MIE will use around 55% of the net proceeds to expand its operations by acquiring interests in other oil fields, or by participating in joint ventures. Some 35% will be used to drill new wells in its three existing oilfields and for the development of advanced technologies for drilling and operating wells under low permeability conditions, the company said.
The company initially attempted to list its shares on the New York Stock Exchange through an IPO in May. At that time, it initially sought to raise between $207 million and $243 million, but later cut the target size to $84 million to $96 million amid weak market conditions. In the end, the company scrapped the US offering altogether and decided to try the Hong Kong market instead.
The listing is scheduled for December 14. BOC International, Deutsche Bank and J.P. Morgan are handling the deal.
Separately, Sateri raised HK$3.33 billion ($430 million) after pricing its shares at HK$6.60 apiece, the bottom end of a price range that went up to HK$9.20. It sold 505.33 million shares. The net proceeds of about HK$3.1 billion will be used to expand production capacity at a project in Brazil and to build a new plant in China’s Fujian province, the company said.
Sateri will start trading on the Hong Kong stock exchange today. Credit Suisse was the sole bookrunner of the deal.