Chinese IPOs

Sinohydro lowers Shanghai IPO target to $2.3 billion

China’s largest builder of dams is offering 3 billion new shares instead of the 3.5 billion it originally planned to sell.
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The Three Gorges dam (AFP) </div>
<div style="text-align:left;"> The Three Gorges dam (AFP) </div>

Sinohydro Corp, China's largest builder of dams, has set the offering price range for a Shanghai initial public offering that could allow the company to raise up to Rmb14.4 billion ($2.3 billion).

The maximum deal size has been reduced from an earlier target of $2.7 billion, suggesting that the issuer is concerned about the current market turbulence. However, even after the reduction, the deal could be the biggest A-share IPO since China Everbright Bank’s $3.2 billion share sale last August.

Sinohydro is now offering to sell 3 billion renminbi-denominated shares, down from 3.5 billion initially, at between Rmb4.50 and Rmb4.80 apiece, the company said in a statement to the Shanghai Stock Exchange yesterday. This means it could raise between Rmb13.5 billion and Rmb14.4 billion from the deal.

The price range values the company at 15 to 16 times its 2010 earnings. Sinohydro’s close competitor, Shanghai-listed Gezhouba Group which builds hydropower stations in China, is currently trading at 18.9 times 2010 earnings.

China announced early this year that the country has budgeted Rmb2 trillion for hydropower and water infrastructure projects over the next five years. The news sent Gezhouba's share price soaring to a peak of Rmb15.70 on January 31, but it has fallen 46% since.  

Some 50% of Sinohydro’s IPO will be offered to institutional investors, while the other half is earmarked for retail investors. The company started taking orders from institutions yesterday and will kick off the retail offering today. The final price will be fixed tomorrow. BOC International and China Securities are joint underwriters of the deal.

Sinohydro has said it needs Rmb17.3 billion to buy new equipment, supplement working capital and fund four clean energy and infrastructure projects in China and overseas. The company is the builder of the Communist Party’s flagship project, the Three Gorges Dam, which is also the world’s biggest hydroelectric project.

The IPO comes as the benchmark Shanghai Composite Index is down 13% this year. However, China’s securities regulator, the CSRC, has cut back on its approval of listing applications in order to clear the way for big issuers such as Sinohydro and Shaanxi Coal Industry, Chinese media reported. It did the same thing for Agricultural Bank of China before its record-breaking $22.1 billion IPO in 2010. Shaanxi Coal is preparing an IPO of about $2.7 billion, but hasn’t yet set a timetable for the deal.

China’s primary market has been dominated by relatively small deals this year. The largest so far is Sinovel Wind Group’s $1.43 billion IPO in January, which was arranged by Deutsche Bank and Essence Securities, followed by Pang Da Automobile Trade’s $965 million offering and Founder Securities’ $905 million share sale, according to Dealogic data.

Meanwhile, China Communication Construction, which is involved in transportation infrastructure in China, plans to raise up to Rmb20 billion in a Shanghai IPO to fund projects, repay bank loans and purchase equipment, according to a statement to the CSRC.  

The company, which is already listed in Hong Kong, plans to issue 3.5 billion A-shares that will expand its total share capital to 18.3 billion, including 4.43 billion H-shares that trade on the Hong Kong stock exchange, it said in a preliminary prospectus. The CSRC said in a statement that it is reviewing the company's listing application.

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