Top of the range pricing for China Coal's $1.7 billion IPO

No hints that fund managers are closing down for Christmas as China's second largest coal provider attracts more than 1,000 institutional investors to the book.
China Coal Energy has raised $1.7 billion from its initial public offering after fixing the price at the top of the HK$3.20 to HK$4.05 price range.

Like other recent Hong Kong listings, ChinaÆs second largest provider of coal after China Shenhua Energy attracted strong demand from both institutions and retail investors. Neither group are showing any hints that they are starting to tire of Mainland-based listing candidates even though this was the eighth company to price a Hong Kong IPO in less than two weeks, raising $5.7 billion between them.

And as one banker put it: why would they tire of these new listings and chose to close their books to preserve their profits for the year when ôevery IPO keeps going up 50% to 80% on the first day of trading?ö

However, according to sources, investors did hesitate over Sunlight Reit, which closed the retail tranche of its offering yesterday and is due to fix the price by today. Sources say the real estate investment trustÆs up to $349 million IPO was about 3.5 times covered on the 10% retail tranche and estimated that the demand from institutional investors was less than 10 times the shares available to them. Sunlight is backed by Hong Kong-listed Henderson Land Development and brought to market by Deutsche Bank, HSBC and Macquarie.

The sharp contrast with most other offerings that are attracting retail subscription multiples in the hundreds is most likely to do with the trustÆs use of financial engineering to boost the yield on the Reit well beyond the natural yield on the properties in the portfolio û a feature the market has shown earlier that it doesnÆt like. While this is a fairly specific case that is unlikely to have much impact on other stocks in the pipeline, the thin subscription levels are bound to cause some discomfort among the many other Reit issuers that are waiting in the wings.

Closest in line is Regal Reit, which will be ready to go early next year assuming a shareholders meeting at its sponsor company, scheduled for December 18, votes in favour of selling the hotel properties to the Reit. Regal Reit is hoping to raise between $600 million and $700 million from the IPO.

China Coal, which is brought to market by CICC, Citigroup and Morgan Stanley, attracted more than 1,000 institutional investors to its offering with the institutional tranche more than 50 times covered post clawback and after deducting the portion of the deal sold to corporate investors.

The 5% retail tranche was just over 170 times covered, sources say. This will trigger a full clawback, boosting this portion of the deal to 20%. China Coal also sold $100 million worth of shares to US private equity firm First Reserve Corp and $25 million worth to American Metals & Coal International.

In addition to that strategic sale, it also sold a combined $250 million dollars worth of shares to corporate investors Citic Pacific, China Life Insurance, a private investment vehicle of Henderson Land Development chairman Lee Shau Kee, Cheung KongÆs Li Ka-shing and New World Development chairman Cheng Yu-tung.

China Coal offered 3.25 billion new H-shares or 29% of its enlarged share capital. The final price values to the stock at 11.5 times its estimated 2007 earnings, which marks a slight discount to Shenhua CoalÆs 13 times.

The shares are due to start trading on December 19.
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