Tianjin Port IPO is 1,700 times subscribed

Deal breaks Hong Kong retail oversubscription record thanks to a cheap valuation and good growth prospects.
If you thought that the recent volatility in global stock markets would make investors more cautious about committing money to new untested names seeking a listing - perhaps with the exception of Bank of ChinaÆs giant offering û think again.

When Tianjin Port Development closed its initial public offering yesterday retail investors had ordered close to 1,700 times the amount of shares earmarked for them and broken the previous Hong Kong market record for oversubscription ratios in a retail public offering.

Sure, the offer wasnÆt that large to begin with and it did not mark a record in terms of actual money committed, but the fact that a HK$1.09 billion ($140 million) deal was able to attract HK$186 billion ($24 billion) worth of orders for its 10% retail tranche alone is no small feat.

In fact, it puts the ports operator ahead of high-profile giants like the Link REIT (HK$107 billion) and China Construction Bank (HK$137 billion) when it comes to the amount of money committed by retail investors.

Some market watchers question the sanity of this, however, and say the only reason for the high-flying numbers is that local banks are providing huge amounts of margin financing which allows retail investors to submit heavily inflated orders.

ôIf people paid with their own money the subscription ratios would be normal and investors would be able to get a reasonable allocation. What happens now is that tonnes of people will end up with tiny lots and many will get nothing at all,ö one banker says.

Brokers say the retail frenzy stemmed partly from the fact that recent IPOs have all soared on the first trading day enabling IPO investors to make a quick buck by selling out early.

ôRetail investors are not very active in the market at the moment since it has been so volatile and many of them simply put all their money into the IPOs instead,ö the director of a local brokerage house says.

Meanwhile, the size of the institutional book was also not a true reflection of real demand since joint bookrunners ABN AMRO Rothschild and CLSA capped orders at $10 million each.

Sources say that institutional investors asked for just over 40 times the 176.9 million shares (30.6% of the offer) available to them after excluding the retail tranche û which was increased to 50% from 10% due to the massive demand û and the 10.6% that was set aside for shareholders of parent company Tianjin Development.

Hutchison Whampoa also agreed to buy 51 million shares in the IPO, accounting for 8.8% of the share offer. The source says there was no price sensitivity in the book.

It was no surprise then that the company decided to price the share offer at the top of the HK$1.55 to HK$1.88 price range, especially since the response during pre-marketing had suggested the price range could have been set higher to begin with.

The top-end price gives a total deal size of HK$1.09 billion ($140 million), which could increase to $161 million if the 15% greenshoe is exercised in full. The offer comprised 578 million new shares, or 34% of TianjinÆs enlarged share capital.

The final price values the company û ChinaÆs fourth largest ports operator - at a fully diluted 2006 PE multiple of 16.9 times. That compares with about 22-23 times for oil and container port operator Dalian Port, which is located in the same region as Tianjin and therefore benefits from many of the same macro economic issues. Dalian Port has risen 57% since the listing on April 28.

Xiamen Port, which is a dedicated container terminal operator located just north of the Pearl River Delta, trades at 17.9 times forward earnings.

Institutional investors liked the stock because of the cheap valuation relative to its peers, expectations of strong growth prospects and the fact that it is a direct play of ChinaÆs economic expansion. The order book included about 200 accounts, of which 60% were said to have been long-only funds. Hedge-funds made up about 30-35% while much of the rest came from private banking clients, a source familiar with the offering says

Tianjin Port derives more than 80% of its revenues from its container terminals, which have a combined capacity of 4.8 million twenty-foot equivalent units (TEU) per year. It also has a non-containerised cargo handling capacity of 240 million tonnes per year, which deals with all types of bulk cargo except for oil.

Like Dalian Port, the new listing candidate is located in the Bohai Rim region in the Northeast of China which has been singled out by the government as a key focus for economic and social development in the next five years. The company forecasts a 28% jump in net profit to HK$147.8 million this year and intends to pay between 30% and 50% of its bottom line as dividends both in 2006 and 2007.

About 60% of the net proceeds will go toward the construction of a new container-handling terminal at the Beigangchi area of TianjinÆs port through a 40% stake in a joint venture with two undisclosed international port operators. The venture will boost the companyÆs existing handling capacity by 37.5%.

The shares are scheduled to start trading on May 24.

Beijing Enterprises, which raised HK$2.1 billion through an IPO in May 1997, for a long time held the record for the most heavily oversubscribed Hong Kong offering with 1,276 times, before being surpassed by China Green (Holdings).

The small vegetable grower and food processing company raised a total of HK$192 million and saw its 10% retail tranche 1,603 times covered. It came to market in January 2004 at the tail end of a mainland-IPO frenzy that helped boost market newcomers like Ping An Insurance and China Life Insurance.

¬ Haymarket Media Limited. All rights reserved.
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