This increase in bargaining power was highlighted over the weekend when Uni-President China Holdings, a beverage and instant noodles producer, priced its initial public offering at the mid-point of the price range. The level of institutional demand was solid at more than 12 times the available shares, but well below what other Hong Kong listing candidates were attracting only a month ago. The order book also contained far more price sensitivity.
According to a source, the spin-off from Taiwan food conglomerate Uni-President Enterprises fixed the price at HK$4.22 for a total deal size of HK$3.72 billion ($478 million), having initially offered its shares between HK$3.75 and HK$4.68.
Meanwhile, Anton Oilfield Services priced its IPO towards the low end of the HK$1.80 to HK$2.40 range at HK$1.88. This gave a deal size of HK$977.6 million ($126 million).
Both companies aimed to price their offerings to support a good aftermarket performance and allow for the exercise of the greenshoe.
Last week, China Sunshine Paper Holdings, a mainland cardboard box maker, fixed the price of its share offer at HK$6 per share against an offering range of HK$5.75 to HK$7.45; and ChinaÆs leading refrigerant and polymer producer, Dongyue Group, which is due to start trading today, priced its IPO at HK$2.16 after marketing the deal in a range between HK$2.05 and HK$2.63. And early last week, aluminium foil producer Xiashun Holdings pulled its IPO, citing difficult market conditions, only two days before it was due to launch the retail offering.
The change in sentiment is seen to be at least partly due to the poor performance of recent newcomers, with six of Hong KongÆs 10 latest IPOs of size currently trading below their issue prices. The worst performers are Dah Chong Hong, a food and auto subsidiary of Citic Pacific, which has fallen 37.4% since its October 17 debut, and Zhong An Real Estate, which has lost 22.4% since its first day of trading on November 13.
The local market has resumed a rising trend over the past two weeks, but remains highly volatile and many professional investors who are able to stay on the sidelines are doing so to avoid taking on an exposure that could leave them with a loss-making position at year end. The same definitely goes for retail investors, as is evident by the fact that Uni-PresidentÆs retail tranche was only five times covered. Being a smaller offering, Antonoil achieved a slightly higher subscription rate of 16 times, which was enough to exceed the first clawback threshold and increase the retail tranche to 30%, but still well below the levels typically seen on Hong Kong IPOs.
That said, long-only funds that have an inflow of cash to invest are still trying to navigate the choppy markets, which is leading bankers to surmise that as long as the new listing candidates are good quality companies and priced at reasonable valuations there will continue to be demand for them.
At the final price, Uni-President is valued at 22.4 times its projected 2008 earnings based on the consensus forecasts by the two bookrunners û Morgan Stanley and UBS. This pitches it at a significant discount to its closest comparable Tingyi, which is currently quoted at 36.7 times. Also a noodle and beverage producer, Tingyi has rallied 18% since Uni-President kicked off its pre-marketing three weeks ago which has increased the relative attractiveness of the newcomer.
Observers say part of TingyiÆs gains may have been sparked by the attention that Uni-PresidentÆs offering has brought on the sector, but they were also underpinned by a strong third-quarter result and news that it is able to pass on higher raw material costs to the end consumer. The latter in particular should be good news for Uni-President as well.
Because of the cheaper valuation, some investors saw Uni-President as a good alternative to Tingyi. According to research firm AC Nielsen, Uni-President was the second largest manufacturer of both juice drinks and ready-to-drink teas in the first nine months of this year with a market share of 29.1% for juices and 22.8% for RTD teas. It was the third largest instant noodle manufacturer, accounting for 11.4% of the market volume, and is the official noodles sponsor for the Beijing Olympics.
The deal attracted about 180 institutional investors, according to the source. The company offered 25% of its enlarged share capital in the form of 881.7 million shares with just over 40% of the shares sold by the Uni-President Group. Given that the retail tranche was only five times covered there will be no clawback, which could help stabilise the deal once it starts trading as institutional investors are typically less eager than retail investors to take quick profits. Also, $120 million of the deal, or 25%, will be taken up by six cornerstone investors who have agreed to a 12-month lockup. There is a 15% greenshoe, which could increase the total offering to $550 million.
Antonoil, which provides oilfield services primarily within the areas of drilling, field, production and wells, also priced is offering at a sizeable discount. The final price translates into a 2008 price-to-earnings multiple of 15.7, which compares with close to 33 times for China Oilfield Services which is viewed as the closest comparable. A syndicate report also estimated the fair value of Antonoil using 2008 figures to be a P/E of 22 to 27 times. Credit Suisse and JPMorgan were the joint bookrunners.
The IPO attracted just over 60 investors and one source says the demand from long-only investors exceeded that from hedge funds by 1.5 times û supporting the anecdotal evidence that many hedge funds have already packed up for the year. The absence of hedge funds typically means that there is less order inflation and less momentum in the book, but also suggests that a majority of the deal would have gone to buy-and-hold investors.
Excluding the 30% that went to retail investors after the clawback, AntonoilÆs institutional tranche was more than five times covered by institutional demand and more than eight times if the demand from private banking clients is also included, the source says. The company sold 520 million new shares, or 25% of its enlarged share capital. Including the 15% greenshoe, the total deal size could increase to $145 million.
Investors were generally positive about AntonoilÆs growth prospects as rising oil prices are expected to result in more capex spending by the leading oil producers. The listing candidate specialises in services that demand new and advanced technologies, which complement the oilfield services that large state-owned oil corporations like China National Petroleum Corporation (CNPC), Sinopec and CNOOC are able to provide in-house.
However, some investors were concerned about the fact that the company allows its customers 180 days to pay their bills. Unless that improves, the company could be short of cash, one observer says.
Antonoil is scheduled to start trading on Friday (December 14) and Uni-President is to follow suit next Monday.
Also pricing this week is: BYD ElectronicÆs up to $990 million offering, which is led by UBS; China National Materials CompanyÆs (Sinoma) up to $538 million deal through BOC International and UBS; and several smaller IPOs. The latter group includes: Vietnam Manufacturing and Export Processing, a manufacturer of motor bikes and scooters that is looking to raise up to $135 million; and Internet content provider Pacific Online, which is aiming to raise as much as $131 million. Both deals are led by BNP Paribas and will close tomorrow.
Meanwhile, sources say department store operator PCD Stores, which started pre-marketing last week, has postponed its offering until early next year as the offering documentation has taken longer than expected to complete. The company will be brought to market by Credit Suisse.
The waning interest in the smaller listing candidates had no impact on China Railway GroupÆs first day of trading on Friday. The construction company gained 27.3% after raising a combined $5.51 billion from its near simultaneous A- and H-share offering.
The other three companies that are still holding above their issue price are Alibaba.com (up 149.6%), Xinjiang Xin Xin Mining (up 51.7%) and Value Partners (up 6.4%). Bosideng, GCL-Poly Energy, Sinotrans and Sinotruk are all lower.