Top Spring raises $200 million, Hilong postpones IPO

Top Spring, a Chinese property developer, prices its shares at the bottom of an indicated range, while Hilong postpones its planned $190 million IPO, blaming market conditions.

Top Spring International Holdings, a Chinese property developer, raised HK$1.56 billion ($200 million) in a Hong Kong initial public offering after pricing its shares at the bottom of the indicated range.

Meanwhile, Hilong Holding, a leading provider of oilfield equipment and services in China, postponed its planned HK$1.48 billion ($190 million) Hong Kong IPO, blaming the weak market conditions.

Top Spring’s deal has done well considering the odds stacked against it during the one-week bookbuilding. The roadshow started last Thursday, one day before Japan’s earthquake occurred, which led investors to be cautious with the size of their orders. Also, China’s tightening policies on the property market did not favour the offering. As a banker put it, “in this tough market, it is good that the company managed to close the deal”.

Indeed, investors have no shortage of Chinese property plays to choose from. Even though Top Spring offered a deep discount to domestic competitors, China’s developers have been tapping the bond market with abandon recently and paying a generous yield.

However, Top Spring’s offering went well from the beginning. The Shenzhen-based developer offered 250 million shares at HK$6.23 to HK$8.10 each. The books were fully covered on the first day of bookbuild.

A number of high-quality institutional investors took part in the deal, betting on a big rebound in China’s property market in the belief that the market will turn around by the end of the year, a source said.

Top Spring priced its shares at HK$6.23 each, which pitched the company at a price-to-earnings (P/E) ratio of 4.3 times, based on its 2011 forecast earnings. That is a deep discount compared with the company’s domestic rivals. Shares in Hong Kong-listed Country Garden and Agile are quoted at a P/E of 9.5 times and 7.5 times, respectively, according to Bloomberg.

Investors are said to be interested in Top Spring’s portfolio of projects, which are located in China’s fastest-growing cities.

The shares will start trading on March 23. HSBC, Macquarie and Nomura are joint bookrunners on the transaction.

Hilong postponed

Hilong kicked off the roadshow for its IPO last Monday, seeking as much as HK$1.48 billion by selling 400 million new shares at HK$2.50 to HK$3.70. The price was expected to be fixed on Wednesday (US time) but the company decided to postpone the deal, without giving details about when it will relaunch.

Sources with knowledge of the deal said the books have actually been covered since last week and the offering was well received by investors in the US, but management at Hilong decided it was not a good time to go ahead with the offering.

The company had secured a $10 million cornerstone commitment from Larry Yung, the former chairman of Citic Pacific.

Based on Hilong’s 2011 forecast earnings, the offering price range translated into a price-to-earnings (P/E) ratio of between 8.8 times and 13 times. The higher end of the P/E range pitches the company at a premium compared with its domestic competitors, Shandong Molong Petroleum Machinery and Anhui Tianda Oil Pipe, which are quoted at around 7 times to 9 times 2011 P/E in Hong Kong trading, according to bankers.

The shares were expected to start trading on March 24. Morgan Stanley and Standard Chartered are the joint bookrunners on the deal.

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