The fact that both companies operate in highly competitive industries may have capped the interest somewhat, although syndicate analysts argue that both of them have advantages over their peers that is helping to preserve margins.
Wuyi Pharmaceutical, which was the smaller of the two deals, fixed the price of its offering at the top end of the HK$1.20 to HK$1.80 range for a total deal size of HK$801.3 million ($103 million). The price came after institutional investors ordered about 55 times the amount of shares initially available to them in an attempt to participate in the strong earnings growth projected for the company, which makes both traditional Chinese medicines and Western drugs.
The company is also expecting to receive approval in the first half of this year for a new Chinese drug, which has the potential of providing an earnings kicker, observers say. The perilla oil capsule will be used to reduce blood cholesterol levels.
Retail investors subscribed for 160 times the portion earmarked for them, triggering the maximum clawback which increased the size of this tranche to 50% from 10%. As a result, the oversubscription ratio for the re-sized institutional tranche rose to more than 100 times.
Hong Kong-based Meadville Technologies also faced a maximum clawback after retail investors asked for 163 times the original 10% tranche set aside for them. Part of the attraction, brokers say, was the fact that the company, which makes printed circuit boards, is owned by the family of Hong Kong financial secretary Henry Tang.
Post claw-back, the 50% institutional tranche was about 25 times oversubscribed, according to sources, who noted that some international investors had chosen not to participate on the basis that the remaining offering was a bit small after the clawback. There was also said to have been some hard price sensitivity in the book, as well as indications by some investors that they thought the valuation at the top of the range was too rich even though they were prepared to pay it in order to ensure they would get stock.
As a result, the final price was fixed not at the top, but in the upper half of the HK$1.90 to HK$2.40 at HK$2.25. This gave a total deal size of HK$1.18 billion ($152 million).
At that price, the company is valued at about 9.7 times its estimated 2007 earnings, which pitches it at a discount to its Taiwanese competitors, including Nanya Printed Circuit Boards, which trade at 11-12 times. The stock did come at a higher valuation than Hong Kong comparables like Kingboard Chemicals, although observers say this was ôa reasonable premiumö given MeadvilleÆs focus on the high-end of the market and its broad industry focus.
MeadvilleÆs IPO was arranged by Citigroup and HSBC.
Wuyi, which was brought to market by Credit Suisse and UBS, was priced at a 2007 earnings multiple of 10.2 to 11.9 times, depending on which syndicate forecast you choose to agree with. This puts it at a slight premium to Hong Kong-listed Tongrentang and Shineway Pharmaceutical, which trade at forward multiples of about 8.5 to 10 times after seeing their share prices gain during WuyiÆs roadshow.
More than 200 institutional investors participated in the sale with good interest from offshore as well as from high-wealth and private banking accounts, one source say. The latter is a common feature in deals where UBS act as a bookrunner, given the Swiss bankÆs large number of private banking clients.
ôSo far there are no large cap pharmaceutical stocks in the market and this is a rare opportunity to invest in this sector in China through a stock that is even remotely liquid.,ö the source notes.
Wuyi sold 27% of its issued share capital or 445.15 million shares and may expand the base deal by 15% if the greenshoe is exercised in full. That would boost the total deal size to $118 million and the free-float to 30%.
Meadville, meanwhile, sold 526.6 million shares, or 26.3% of the company. It too has a 15% greeshoe, that could boost this deal to $175 million.
Wuyi is scheduled to start trading on February 1 with Meadville to follow a day later.
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