SFK is planning to sell 242 million shares, or 27.5% of the enlarged share capital, of which 90.9% are new. The remaining 9.1% are sold by Springtime, which will see its shareholding drop to 72.5% of the constructor at the time of listing from 100% at present. Springtime is 71%-owned by Lo Kai Shui, deputy managing director of Hong Kong property developer and investor Great Eagle Holdings and the brother of Great EagleÆs chairman Lo Ka Shui.
Of the total shares sold, 90% will be offered to institutional investors, while the rest of the deal has been earmarked for retail investors. A 15% greenshoe could increase the total deal size to $178 million, if fully exercised. ICEA is the sole bookrunner.
China Zhejiang Construction, a Chinese state-owned construction company, will come into the deal as a cornerstone investor, taking up HK$100 million worth of shares, or 8.3% of the total offering.
SFK has set a price range between HK$3.70 and HK$5.00, which values the company at 8.5 to 11.5 times its projected earnings for the fiscal year to March 2009. This pitches the listing candidate at quite an attractive discount compared with Hong Kong-listed China State Construction International Holdings, which trades at 18.9 times its 2008 earnings.
ôIPOs have been price cautiously in December and this cautious approach will continue in January, due to volatility,ö says a source close to the primary market. ôIn this case, the company is trying to leave some room for investor gains in the aftermarket.ö
Despite general market fluctuations, Hong Kong listed construction companies have been trading well recently. After falling more than 40% in November, the stock price of China State Construction has recovered more than half of those losses to close at HK$14.30 last Friday. Similarly, Hsin Chong Construction Group has rebounded nearly 50% since it lost more than 65% between November and mid-December and closed at HK$2.83 last week.
SFK concentrates on construction and maintenance works for buildings and civil engineering in Hong Kong and Macau. It has been involved in various major construction and improvement projects, including Hong KongÆs Central Reclamation Phase Two; the construction of the subway linking MTR CorporationÆs Central Station with the Hong Kong Station from which the Airport Express operates; the West Rail Headquarter; as well as The Venetian projects in Macau, to mention but a few. From 2005 to 2007, the companyÆs net profit grew at a compound annual growth rate of 94%. In 2007, the company generated 65% of its gross profit from Hong Kong, while around 34% came from Macau.
As a leading construction company in this region, SFK is likely to benefit from the rapid development of Macau and the introduction of ôTen Major Infrastructure Projectsö by Hong Kong Chief Executive Donald Tsang in his recent policy address. The Hong Kong government is planning to spend HK$250 billion ($32 billion) on transportation, cross-border infrastructure and new urban development projects, including the construction of the South Island Line together with underground operator MTR Corporation and a bridge linking Hong Kong with Zhuhai and Macau.
ôThe Venetian is quite an aggressive player in Macau, and there are still big hotel projects coming up. Constructors who can build long-term relationship with the operators are going to benefit from this expansion,ö says a source, explaining why SFK is at an advantage by having taken part in the construction of The VenetianÆs exposition centre.
About a year ago, SFK also started to expand into China, focusing on land development and turnkey projects. It is expected that some of these projects are going to contribute revenues in fiscal year 2009.
The constructor is planning to spend 60% of the net IPO proceeds on building construction, civil engineering and existing projects, while 30% will be used to fund a land development project in Zhuhai and some turnkey projects.
Pricing is scheduled for January 24 and trading is expected to start on January 31.
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