The deal, which was led by Cazenove and Morgan Stanley, was in the market at a tough time with the Hang Seng Index falling on four of the six days during the roadshow and losing a combined 2.7%. This ôprovided difficult conditions for all dealsö, says a source close to the offering. ôInvestors are very price sensitive. ItÆs hard (for them) to make a lot money in this environment, even when the fundamentals are very attractive.ö
The small size of the deal allowed for a short roadshow, which reduced the exposure to the market downturn. ôThe fewer days on the road, the better. You donÆt want to be out there any longer than necessary to get the message out and do the deal, because the market now is more likely to go down than up,ö the source says.
The institutional tranche was said to be ôwellö covered, while the 10% retail tranche attracted subscriptions for more than twice the number of shares earmarked for it. Only 25 institutional investors came into the book û although given the deal size that was not too surprising û with around 50% of the demand generated out of Asia and a large chunk of the rest coming from the US. The book was described as a good mix of long-only accounts and hedge funds, with a small order amount coming from private capital.
At the IPO price of HK$2.63, the company is valued at 11.2 times its projected 2008 earnings, based on the average estimates by the bookrunners. This puts it at a 35% discount to US-listed Chinese advertiser Focus Media, which is currently trading at 17.1 times next yearÆs earnings after a slight decline in its share price while SinoMedia was in the market. At the start of the roadshow on June 23, Focus Media was trading at 18 times.
SinoMedia sells advertising space to Chinese television networks such as Shenzhen Satellite TV Channel and Jiangsu TV City Channel, but its biggest partner by far is CCTV, ChinaÆs state-owned television network, which accounts for almost 91% of its gross revenue.
The companyÆs profits have been rising: between 2005 and 2007, revenues increased from Rmb230 million to Rmb364 million ($29.4 million to $46.6 million), with its profit after tax rising from Rmb24.8 million to Rmb42.7 million.
The company sold 139.4 million primary shares. The deal includes a 15% greenshoe, which, if exercised, could provide another 21 million shares and increase the total size of the deal to HK$421.9 million ($54 million).
SinoMedia is the first company to price an IPO in the second half of 2008, which has been a disappointing year for new listings so far. During the first six months of the year, Hong Kong saw 18 companies list, compared with 38 companies in the same period in 2007. And the companies that did list brought in only $9.4 billion, which is 45% down on the volume in the first half of 2007.
The Hong Kong IPOs that have gone ahead have done so in a sliding market û since the start of the year the HSI has fallen by 22%. The largest IPO so far this year is China Railway Construction Corporation, which in March raised $2.3 billion from the H-share portion of its near dual listing in Hong Kong and Shanghai. Nothing else has come even close in size, and several deals have been pulled before pricing.
The second half of 2008 could be in for an auspicious start if all goes well for the two IPOs that are set to price today: Macau casino operator SJM and Chinese sportswear producer XDLong, which are seeking to raise a combined $781 million.