Chinese IPO

Sinohydro raises $2.1 billion from Shanghai IPO

China’s largest builder of dams raises 22% less than initially targeted after pricing its offering at the bottom end of the range.
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Water gushes out of the Three Gorges Dam during a flood discharge operation (AFP) </div>
<div style="text-align:left;"> Water gushes out of the Three Gorges Dam during a flood discharge operation (AFP) </div>

Sinohydro, China’s largest builder of dams, has raised Rmb13.5 billion ($2.1 billion) from its Shanghai initial public offering after fixing the price at the bottom of the indicated range. The gross proceeds are 22% below the company's original $2.7 billion target.

The offering is further indication that the once sizzling primary markets in Shanghai and Hong Kong have gone cold. Several issuers have cancelled their listing plans in the past 10 days and those that have succeeded have had to sell shares at the lower end of the price range. Aftermarket trading has also generally been poor.

On Wednesday, Citic Securities, China's largest publicly traded brokerage, raised HK$13.2 billion ($1.7 billion) after issuing 995.3 million shares at HK$13.30 each. The price was fixed slightly above the bottom of the indicated range, or at a 10% discount to the firm's Shanghai-listed shares. Great Wall Motor, China's top manufacturer of sport utility vehicles, fell 8.8% in its Shanghai debut on the same day after raising Rmb3.96 billion ($619 million) from its A-share IPO.

Sinohydro sold 3 billion shares at the bottom of the Rmb4.50 to Rmb4.80 price range. Based on the company's 2011 forecast earnings, the final price represents a price-to-earnings (P/E) ratio of 10 times, according to a filing with the Shanghai Stock Exchange.

The company, which is the builder of China's Three Gorges Dam, the world's largest hydroelectric project, originally planned to sell 3.5 billion new shares but shortly before launch it trimmed the offering to 3 billion shares. The terms meant it was no longer able to meet its targeted proceeds of Rmb17.3 billion ($2.7 billion).

The allocation of shares to institutions and retail investors is split 50:50. The institutional portion of the deal was 1.7 times covered, while the retail tranche was 10 times subscribed. Some 90 institutional investors, including trust firms, brokerages, and insurance companies, participated in the deal. BOC International and China Securities were joint underwriters of the deal

The deal comes at a time when the Shanghai Composite Index has fallen 17% and Hong Kong's Hang Seng Index has lost 24% year-to-date. The Hong Kong stock market was closed for trading yesterday due to Typhoon Nesat, as were most businesses and services in the city.

Sinohydro, which has built around two-thirds of all medium- and large-size dams in China, needs Rmb17.3 billion to buy new equipment, to supplement its working capital and to fund four clean energy and infrastructure projects in China and overseas, the company said in the listing prospectus.

Sinohydro’s net income rose 27% in 2010 to Rmb2.91 billion on increased demand for hydropower facilities, it said in July. The company had 261 projects under construction in 55 countries at the end of last year, with overseas projects accounting for 26% of revenue and 35% of gross profit.

Sinohydro's IPO overtakes Sinovel Wind Group's $1.4 billion A-share listing in January as the largest Shanghai IPO so far this year. It was widely anticipated that Sinohydro would compete with Shaanxi Coal Industry, which plans to raise around $2.7 billion, for the biggest Shanghai IPO this year. However, a new candidate for the top position emerged after China Communications Construction, the country's largest builder of ports, earlier this week won approval from the securities regulators for a Rmb20 billion ($3.1 billion) Shanghai IPO.

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