WH Group rises in trading debut

Shares in the pork producer rose 7% in its trading debut in Hong Kong, although the company insists the big picture is far more important than day-to-day stock movement.
In demand
In demand

WH Group shares rose in its market debut in Hong Kong after the pork producer secured $2.05 billion in an initial public offering of shares in its second attempt last week.

Shares in the pork producer opened at HK$6.20 and rose 7.4% to HK$6.66 by the end of the trading day Tuesday. The listing comes amid a rebound in local stock markets. Hong Kong’s Hang Seng Index is up 5% so far this year to August 5, and rose 0.2% on Tuesday.

The institutional demand was not as strong as initially expected — the company described this tranche as only “moderately oversubscribed”. However, the retail take-up exceeded expectations. This tranche was oversubscribed by 54 times, prompting the syndicate to trigger the 10% clawback set aside for Hong Kong investors up from 5% originally.

The deal represents 18% of the enlarged share capital and WH Group has the option to sell additional shares that could boost the amount raised to $2.36 billion.

Retail investors were undoubtedly pleased with the trading debut, although WH Group chairman and chief executive Wan Long emphasised the importance of focusing on the big picture as opposed to day-to-date stock movements.

“We don’t care much about such small ups and downs in the share price,” Long told FinanceAsia. “The key point here is to build up a good brand and [build up] our reputation [in capital markets].”

The recent recovery in markets coupled with a restructured deal and lower valuation helped push the deal across the finish line the second time. Initially marketed at 15 to 20.8 times 2014 earnings, the restructured deal was sliced to 11.5 times 2014 earnings, much more attractive to prospective investors.

It was a sticking point in the first attempt to go public — the issuer and its selling shareholders wanted top dollar for the company’s shares and maintained the fair value was between HK$8 and HK$11.25. Others argued it was too aggressive.

Lower valuation aside, Long maintains his company’s future is bright.

“Even now the valuation is not very high, I have confidence that the share price will come up and the company will give nice returns to investors,” Long said. “Our Shenzhen-listed subsidiary is an example. The company has not disappointed capital markets.”

Shuanghui Development has risen more than 600% during the past 10 years, although it is down 20% so far this year.

Restructured deal
In addition to downsising the deal to HK$6.20 from the initial HK$8 to HK$11.25 range, the secondary tranche was strapped, which eliminated the overhang created by shareholders CDH, Goldman Sachs, Temasek and New Horizons, which all intended to sell their shares once it went public.

Now, in the new terms, the company’s existing management, which own 42.6%, is subject to a three-year lockup, while CDH, which owns 38.1% and is the second largest shareholder, is locked up for one year.

Other shareholders, including Goldman, Temasek and New Horizons, are only subject to a six-month lockup, but these investors should not create a significant overhang — of the three mentioned, Goldman holds the most with a 4% stake.

WH’s decision to scrap the 29 syndicate team down to two — Morgan Stanley and BOC International — undoubtedly helped get the deal done as well. Bankers noted that it was almost impossible to organise a 29-bank syndicate, and this disorganisation was felt by the prospective investors, who complained about receiving multiple calls from different banks on the same company and all with varying information.

The deal was initially slated to raise $5.3 billion in April, but when investors weren’t biting at the high valuation, the deal was restructured once before being pulled altogether.

WH now plans to use the slimmer proceeds to pay back part of the debt it took on when it acquired Smithfield Foods last year for $4.7 billion.

It is the second largest IPO in Hong Kong this year, behind only HK Electric’s $3.1 billion deal earlier this year, according to Dealogic.

Additional reporting by Jing Song

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