NVC Lighting seeks $272 million in Hong Kong IPO

The offering attracts many “high-quality” investors from Hong Kong and mainland China during the first two days of bookbuilding, while Giti Tire decides to hold off on the launch of its planned IPO.

NVC Lighting Holdings, one of the leading suppliers of lighting products in China, has started taking orders from institutions for its up to HK$2.11 billion ($272 million) initial public offering in Hong Kong.

The Guangdong-based company produces luminaire, lamp and other lighting electronics products, which it then sells via distributors. It plans to use the proceeds from the deal to fund market expansion, brand name penetration and product research and development.

Demand for lighting products, particularly energy-saving ones, has seen a rapid surge in China fuelled by the country's dazzling economic growth and fast urbanisation. China's top two power groups, Huaneng Power and Datang International Power, said last month that their power output had risen by 40% and 33%, respectively, during the first quarter. Lighting product players are racing to capture this growth as well.

Global giant Phillips Lighting is the current leader in China's lighting product market, while NVC Lighting is trying to cement the number two position as the market undergoes consolidation, favouring players that provide good quality and with recognised names, NVC said in a preliminary IPO prospectus.

NVC and existing shareholders are offering a combined 727.54 million shares, or a 25% stake in the company, at a price between HK$2.03 and HK$2.90 per share. Based on the price range, the company will be able to raise between $190 million and $272 million. 

The bookbuild began on Monday and, in the first two days, the deal attracted many "high-quality" investors from both Hong Kong and mainland China, bankers familiar with the deal said.

Investors have been questioning whether the issuer can be considered a manufacturer or a retailer because the former comes with lower valuations, while the latter can demand higher prices, sources said. But NVC plays a dual role and is offered at a price-to-earnings ratio between that of a manufacturer and a retailer -- 14.5 to 20.7 times based on this year's projected earnings.

The base offering consists of 95.4% primary shares and 4.6% secondary shares. The company may issue an additional 109.13 million shares -- 95% new and 5% secondary -- if a 15% greenshoe option is fully exercised, increasing the deal to between $219 million and $313 million.

Citic Securities is participating in the deal as a cornerstone investor and has agreed to purchase $20 million worth of shares. The offering has a standard structure with 90% of the shares going to international investors and the remaining 10% earmarked for retail investors, subject to standard clawback triggers.

The sale is being managed by Goldman Sachs, which is also a shareholder of NVC, and HSBC and will be priced after the US close on May 12. The trading debut is scheduled for May 20.

Separately, Giti Tire, China's largest tire maker, which had planned to raise between $400 million and $500 million in a Hong Kong IPO, has put the sale on hold citing the volatile market conditions.

The company had been pre-marketing the deal for a week through Bank of America Merrill Lynch and Credit Suisse, and was scheduled to start bookbuilding yesterday. But a source said the company "is still deciding when to go".

China stocks have fallen to their lowest level in months on concern that Beijing's order to banks over the weekend to set aside more reserves won't be enough to avert asset bubbles in the world's fastest-growing economy. The reserve requirement will increase by 50bp effective May 10, the People's Bank of China said on Sunday. It is the third such increase this year under a campaign to absorb excess cash in the economy.

This is Giti's third attempt to float its shares in Hong Kong. Founded in 1993, the company originally planned an IPO in 2004, but postponed the issue for restructuring reasons. It revived the listing plan in 2008, but again decided to postpone because of market conditions.

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