Pre-marketing activities signal busy month for IPOs in Asia

Australian mining companies Resourcehouse and Galaxy Resources are among the growing line-up of issuers looking to list in Hong Kong, Singapore or New York before the end of the first quarter.

A wave of pre-marketing activity during the past few trading days suggests that the quiet start to the year could be over for Asia’s equity capital markets.

Only three issuers raised more than $100 million during February, but a number of companies are now ready to launch initial public offerings. On Monday, Hutchison Port Holdings Trust (HPH Trust) announced an IPO that could raise as much as $5.8 billion and Perennial China Retail Trust (PCRT) started bookbuilding an $862 million offering last Friday, with both business trusts aiming to list in Singapore. The pickup in activity should help to end the first quarter on a strong note.

Two Australian mining companies that are seeking to list in Hong Kong joined the pipeline on Monday – coal and iron ore miner Resourcehouse, which according to sources is looking to raise about $2 billion, and lithium miner Galaxy Resources. The latter is already listed in Sydney, but is aiming to raise $200 million to $250 million from a dual-listing in Hong Kong.

Other deals in the market include:

- China Kingstone Mining, a Sichuan-based marble mining company, which started bookbuilding on Monday for a Hong Kong IPO of up to $250 million, arranged by Citi.

- Hilong Holdings, a Chinese oil equipment manufacturer, which started pre-marketing last Thursday for a Hong Kong IPO of about $200 million. The company’s main business area is drill pipes for onshore oil exploration, but it also makes coating materials for drill pipes and is involved in oil field services. The management roadshow could kick off as early as Monday. Morgan Stanley and Standard Chartered are arranging the deal.

- MMI, a Chinese maker of precision technology products that is backed by private equity firm Kohlberg Kravis Roberts & Co. The company is expected to raise between $300 million and $400 million through a Singapore listing. Pre-marketing kicked off yesterday and the formal roadshow is scheduled to start on March 15. Deutsche Bank, Macquarie and UBS are leading the deal.

- Global Market Group, an online trading platform that matches Chinese suppliers with international wholesale buyers – sources describe it as a high-end version of Alibaba.com – which is looking to list on the New York Stock Exchange. The Chinese company will start the formal bookbuilding on Thursday and is expected to raise between $75 million and $100 million with the help of Deutsche Bank and Piper Jaffray.

Based on the expected deal sizes, these eight companies could raise at least $8.7 billion, which will add to the $26.5 billion raised from the Asian equity markets so far this year to bring the total above $35 billion. And, according to sources, the Singapore market could get even busier as the Mapletree group is said to be close to launching another real estate investment trust (Reit), this time focused on commercial properties. The vehicle, named Mapletree Commercial Trust, is aiming for an IPO of more than $1 billion and pre-marketing may kick off as early as this week. Citi, DBS, Deutsche Bank and Goldman Sachs are joint bookrunners.

On top of that, market participants expect to see more placements and block trades, and perhaps even convertible bonds, as more companies are emerging from the blackout periods surrounding their 2010 earnings releases. There is also likely to be more issuance in China’s A-share market, which will help push up the overall Asian numbers.

And there should be more IPOs launching in the next few weeks across Asia, although they may not be completed before the end of the month. This suggests volumes in the first three months this year have a good chance of matching the $42 billion that, according to Dealogic, was raised in Asia ex-Japan in the first quarter of 2010 (actually up to March 26) -- assuming the secondary markets remain relatively robust.

Resourcehouse
Aside from HPH Trust, which is already on the road, the largest among the deals that have just started investor education is Resourcehouse, which is returning to the Hong Kong market after calling off an earlier listing attempt in December 2009. There was talk that the Australia-based company would try again in the first half of 2010, but the deal never materialised.

The company, which has two mining projects – coal and iron ore – in the early development stages, is owned by Australian businessman Clive Palmer, but has teamed up with several Chinese companies, including Metallurgical Corporation of China and China Railway Group with regard to the development of the mines and the infrastructure linked to them. It is also in discussions with Export-Import Bank of China about a financing agreement and has signed off-take agreements with China Power International Holding and international energy trader Vitol for the entire 40 million tonnes of coal that it is expected to produce every year once the coal mine becomes operational.

The off-take agreements have been in place since the last time the company was trying to list in Hong Kong and should make the stock more attractive for investors. According to people close to the deal, this also puts it in a good position for long-term growth, even though the two mines are only scheduled to start operations in 2014 and it is expected to remain loss-making until 2015.

However, some investors are concerned that beyond Palmer himself, there is no real senior management team that can be relied on to oversee the greenfield projects and ensure they will be executed on time and on budget. According to sources, Resourcehouse is relying on consultants for some of that work, which is somewhat unconventional and, as a result, investors might take a bit of convincing.

This issue is reportedly part of the reason Credit Suisse decided to step away from the deal, leaving BOC International and J.P. Morgan to arrange the Hong Kong IPO on their own. Resourcehouse appointed the three banks in the middle of last year to replace Citi, Macquarie and UBS who were on the deal the first time around.

Pre-marketing will last for at least two weeks, after which the bookrunners will review the situation, sources say. If there is sufficient demand, they will launch the bookbuilding thereafter.

Galaxy Resources
The second Australian miner is a somewhat different story, although it too has yet to record a net profit or a positive operating cashflow, according to a preliminary listing prospectus published on the Hong Kong stock exchange website on Monday. However, Galaxy’s hard rock lithium mineral mine and processing plant in Western Australia started operations in October last year and is expected to reach full capacity by the fourth quarter of this year. The company has also been listed on the Australian Stock Exchange since 2007, which means its track record is easily accessible and transparent. While significantly smaller than the Resourcehouse deal, Galaxy’s Hong Kong IPO could increase the company’s existing market cap by as much as 50%.

The money raised will be used to fund the continuing construction of a downstream lithium carbonate plant in China’s Jiangsu province where it will process the raw material from its Australian mine, known as spodumene concentrate, into a compound that can be used to manufacture cathodes for lithium-ion batteries. The plant is expected to start production in the second quarter of this year and to reach full capacity in early 2012.

The company said there are “significant growth opportunities” in the market for lithium-ion batteries, driven by their current and potential use in electric cars, electric bikes, alternative energy storage and portable electronics, and added that it aims to position the company to capitalise on that growth by becoming a leading, vertically integrated producer of high-quality lithium-related products.

“Being vertically integrated and having a stable supply of spodumene concentrate, with quality levels that we can control, will help mitigate the risk of future price, volume and quality variations in raw material supply in a market we expect to grow, as well as assisting us to produce lithium carbonate with our targeted purity level of 99.9% or above,” it said.

To complete its integration, the company is also currently evaluating the potential construction of a lithium-ion battery plant near its Jiangsu plant.

Galaxy is planning to launch a formal management roadshow and bookbuilding on March 14, and the Hong Kong listing is currently scheduled for March 31. Because the company is already listed, there will be no price range, but a maximum price only. The final price is likely to be at a discount to its Australia-listed shares, which have gained significantly since the dual-listing was first flagged in the fourth quarter of last year.

BNP Paribas and Morgan Stanley will arrange the Hong Kong listing.

¬ Haymarket Media Limited. All rights reserved.