The new price values Solargiga at 15.4 to 18.4 times its 2008 earnings. The issuer is seeking to raise up to HK$2.06 billion ($264.6 million) by selling 422.7 million shares, of which 60% are new shares, while the remaining 40% are being sold by the two main owners as well as some minority shareholders. BNP Paribas is the sole bookrunner.
ôThe adjustment is in accordance with the market, which has witnessed almost a 10% loss over the last three days,ö says a source close to the deal.
The Hong Kong market opened down this week, with the Hang Seng Index losing 3.8% in consecutive trading sessions on Monday and Tuesday. This was followed by a 5.6% slide on Wednesday, the steepest plunge since the market tanked following the September 11 terrorist attacks.
The bearish sentiment is the outcome of another round of bad news related to the US subprime crisis. On January 15 Citi announced an $18.1 billion write-down in the value of its investment portfolio. And on January 17 Merrill Lynch announced a $14 billion fourth-quarter write-down, which it had already signalled to shareholders by announcing the induction of new investors on January 15.
The Hong Kong market bucked the trend and recovered 2.72% yesterday to close at 25,114 points. Investors are hopeful of good news from Federal Reserve chairman Ben Bernanke.
Investors have reacted positively to offerings from solar energy players in the US but, in Hong Kong, Solargiga is the first one to test the water. ôSizable deals are difficult at this moment and investors may hesitate to invest in something new in a choppy market,ö comments another source.
The only other alternative energy company trading in the local market is China High Speed Transmission Equipment Group, which makes gearboxes for wind turbines and currently trades at 37.7 times its 2008 earnings. China High Speed listed in June last year and bullish investors drove the shares up to double their issue price on its trading debut.
But markets have been nervous since July and there is still no consensus over whether Asia is really de-coupled from the US. In this environment, Solargiga was never expected to be a repeat of China High Speed.
Another market source says although many stocks look attractive after the slide, some listing candidates are offering bargains. Solargiga itself is considerably cheaper than China High Speed at the new price range. Another IPO hopeful, property developer Changsheng China Property, is offering a 35% to 50% discount to its 2008 net asset value with a price range of HK$3.32 to HK$4.51. Changsheng plans to raise up to $144 million.
Apart from Changsheng, a few other companies are pushing their original IPO plans in the Hong Kong market. Hong Kong building construction and civil engineering contractor, SFK Construction, launched its institutional roadshow on Monday, as it seeks to raise up to $155 million. A market source says the book was fully covered on the first day of the roadshow, although the demand on Tuesday and Wednesday came in slower. Also in the market is Chinese department store operator, Maoye Department Store, which set its price range between HK$4.35 and HK$5.65 to tap up to $905 million.
ICEA is the sole bookrunner of SFKÆs offering, while Goldman Sachs is leading the Maoye deal. BOCI and Cazenove are the joint bookrunners of ChangshengÆs offering.
ôI guess most bookrunners are well aware of recent market volatility. Therefore when they set the price range, they prepare for the worst and hope for the best,ö says another source. Other bankers point to the fact that issuers are still successfully placing paper, albeit at depressed valuations, suggesting market conditions are down but not out. And, ultimately, that's the silver lining: that equity markets in the region are still open for business.