Ruinian completes Hong Kong IPO against difficult backdrop

The Chinese provider of nutritional supplements and health-food products raises $116 million after pricing the deal above the bottom of the range.

Ruinian International, a small-cap provider of nutritional supplements and health-food products and health drinks in China, showed that market newcomers can still generate interest with its successful IPO at the end of last week.

The Wuxi-based company priced its initial public offering at HK$3.00 per share, slightly above the bottom of the indicated range of HK$2.95 to HK$3.78, resulting in a total deal size of HK$900 million ($116 million). According to a source, the institutional tranche, which accounted for 90% of the deal, was about two times covered, while the retail offering was around seven times subscribed. While by no means excessive, it is worth noting that it is typically more difficult to sell a small deal at times when the secondary market is weak -- like now-- as investors are wary of the lower liquidity. So, the fact that the deal got done, and that it was able to price above the bottom of the range, sends a positive message about investor appetite.

This ought to come as a relief for the companies lining up to launch pre-marketing in Hong Kong next Monday. And will help reduce the concerns caused by the fact that no fewer than five IPOs have been pulled in Europe recently and several deals in the US have been either cancelled or re-priced.

In Hong Kong, Sijia Group, which makes high-strength composite materials made from polyester as well as inflatable and waterproof products, pulled its IPO of up to $107 million earlier this month, and several of the newcomers have also had difficulties to hold above the IPO price in the secondary market. Notably, International Mining Machinery (IMM), a Chinese producer of mining equipment, fell 13.5% on its first day of trading last Wednesday and even after a slight recovery finished the week 11% below its IPO price. The Hong Kong market was closed on Monday and Tuesday this week to celebrate the Chinese New Year.

"IMM's debut really dented sentiment. The demand from high-net-worth individuals fell away and fund managers got cold feet," said one source close to Ruinian's offering.

The company was well aware that the market might be tough, but to avoid a clash with the many listing candidates looking to come to market next week, it decided to push the deal out before the holidays. This also meant that it cut the institutional roadshow and bookbuilding to just four days and ran the institutional and retail offerings at the same time.

Asian investors accounted for the majority of the demand, or 60%, while European investors contributed 35% and US investors only about 5%. Most of the buyers were said to have been long-only funds.

The buyers liked Ruinian's leading position in the domestic market, which is growing strongly, and the fact that it has a strong brand. According to its listing prospectus, the company's Ruinian-branded amino acid-based nutritional supplements had a 21.6% share of the Chinese market in 2008, in terms of revenues. Its revenues have grown at a compound annual growth rate of 79.3% from 2006 to 2008.

But it also likely helped that the company has the backing of three well-known international investors -- Li Ka-shing-controlled CK Life Sciences, Templeton Asset Management and Government of Singapore Investment Corp (GIC). CK Life and GIC sold a small portion of their holdings as part of the IPO, but still hold 9.3% and 6.8% of the company respectively. Templeton will keep all its shares and will own 5% at the time of listing.

There were no obvious comparables as there are no other Hong Kong-listed companies focusing on amino acid-based products and most investors looked at the deal on an absolute basis. The IPO price of HK$3.00 valued Ruinian at 10.9 times its projected 2010 earnings.

The company sold 30% of its enlarged share capital or 300 million shares, of which 250 million were new. There is a 15% overallotment option that could increase the total proceeds to $133 million.

Ruinian was brought to market by CCB International and HSBC and is due to start trading on Friday.

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