Steelmaker Xiwang kicks off roadshow for Hong Kong IPO

The Chinese steelmaker aims to raise as much as $217 million through its offering, at a price range that is seen at a discount to its major comparables.
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Steelworkers attend an electric arc furnace in China (ImagineChina)
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<div style="text-align: left;"> Steelworkers attend an electric arc furnace in China (ImagineChina) </div>

Xiwang Special Steel yesterday launched the institutional roadshow for an initial public offering of between $171 million and $217 million, a deal that will be one of the first major IPOs in Hong Kong this year.

With the Chinese New Year holidays in late January out of the way, IPO activity is expected to pick up in Hong Kong — the world’s busiest market for new listings in 2011 for the third year in a row.

Although analysts expect markets will remain volatile for some time, global markets have been cheered by encouraging signs of a recovery in the US economy. Data released on Friday showed that the country’s employers added 243,000 jobs last month, helping the unemployment rate to fall to 8.3%, its lowest level since February 2009. After gains of more than 1% in US stocks on Friday, Hong Kong’s Hang Seng Index ended slightly lower yesterday, while Japan’s Nikkei average finished up 1.1%.

Also currently in the market is Canada’s Sunshine Oilsands, though the roadshow launch expected yesterday for its planned offering of up to $600 million in Hong Kong has been delayed. The new timetable is still unclear — it could be delayed until later this week or next week due to a process-related issue, according to a source. The biggest amount raised through an IPO in Hong Kong so far this year is $55 million.

Xiwang is offering 500 million shares, or 25% of its enlarged share capital. Of the 500 million shares, 80% are newly issued, while 20% will come from the steelmaker’s major shareholder, another source said.

The shares will be offered at a price ranging from HK$2.65 to HK$3.36 apiece, which will allow the company to raise between $171 million and $217 million. The deal comes with a 15% greenshoe option, all in primary shares.

The deal has won some positive feedback, particularly from high-net-worth corporate clients, while institutional investors have also shown some degree of interest, the source said.

Xiwang’s price range values the company at about 3.8 times to 4.8 times its 2012 price-earnings (P/E), which pitches it at a discount to its major comparables such as special steel companies and carbon steel companies in China, the source said. These companies stand at an average of 6 times and 6.4 times 2012 P/E, respectively, the person added.

Based in Shandong province, Xiwang is an electric arc furnace integrated steel manufacturer. The company makes ordinary steel products, as well as special steel products that are used in various applications, including production of seamless steel pipes, bearings, gearings and steel welding wires, it said in a listing document published on the Hong Kong stock exchange website.

Due to weakened demand and falling steel prices in China, Xiwang has been selling less steel and at lower prices since September 2011, according to the listing document. But the company added that its gross profit margin has not been significantly affected in general, as the decrease in the average selling price of its steel products has been accompanied by a drop in its raw material costs.

As of September 30, 2011, the company had an aggregate smelting capacity of about 1 million tonnes, and an aggregate designed annual rolling capacity of 1.6 million tonnes.

In terms of earnings, the company has shown encouraging signs of growth. Between 2008 and 2010, the company’s net profit grew from Rmb79.7 million to Rmb492.8 million, representing a compound annual growth rate of almost 150%, the listing document showed.

According to the current timetable, the pricing is expected on February 17 and the listing is scheduled for February 23.

The company will be going to Hong Kong, Singapore, Boston and New York for the roadshow, the source said.

J.P. Morgan is the sole global coordinator for the deal and ABC International, CCB International, Citi and Kim Eng Securities join as bookrunners.

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