Zhengzhou Coal launches Hong Kong IPO

In a busy week for IPOs in the city, the mining machinery company kicks off the bookbuilding for its offering of up to $350 million.
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Zhengzhou Coal: Aiming to raise up to $350 million
<div style="text-align: left;"> Zhengzhou Coal: Aiming to raise up to $350 million </div>

Zhengzhou Coal Mining Machinery started the international bookbuilding yesterday for its initial public offering of between HK$2.3 billion and HK$2.7 billion ($300 million to $350 million). The company is a leading maker of coal mining and excavating equipment and China’s biggest maker of hydraulic roof supports.

Zhengzhou Coal, which is already listed in Shanghai, started pre-marketing for a $400 million to $500 million Hong Kong IPO in mid-September, but went back to the Chinese regulators to ask for an increase of the maximum discount versus its A-share price to 15% from 10%. The request was later approved, giving the company more flexibility with regard to pricing.

Zhengzhou Coal’s Shanghai-listed stock finished up 3.8% yesterday at Rmb9.53 (HK$11.8), compared to the indicative price range of between HK$10.38 and HK$12.28 a share for the H-share IPO.

The stock has shed 8.8% since pre-marketing started on September 18, taking its year-to-date fall to more than 23%. The Shanghai Stock Exchange Composite Index is down about 7.7% so far in 2012.

After a couple of quiet months, the Hong Kong IPO market has become lively in recent weeks as the year-end approaches. Today, PICC Group is set to launch its high-profile $3 billion to $4 billion H-share IPO, which is set to be the biggest in the city this year. Earlier this week, Future Land Development, a Chinese property developer, started taking orders for its offering of up to $328 million. The deal came soon after CIFI Holdings, a fellow property developer, raised $215 million from its Hong Kong IPO.

Before the launch, Zhengzhou Coal had signed up four cornerstone investors who will take up a total of $120 million, or as much as about 40% of the base deal, according to the term sheet. These investors are: Shikumen Capital ($50 million); China Huadian ($30 million); Inner Mongolia Yitai Group ($30 million); and Shandong Laiwu Steel ($10 million).

The deal comprises roughly 221 million H-shares for a price range between HK$10.38 and HK$12.28 each. The deal size represents 13.6% of the enlarged share capital. There is a 15% greenshoe option of an additional 33.17 million shares, which could raise as much as HK$3.12 billion ($403 million). All shares are new.

Of the base deal, 10% is earmarked for the Hong Kong retail tranche, while 90% will be offered to institutional investors.

The price range values the company at a 2013 price-to-earnings ratio of between 6.6 times and 7.8 times on a post-shoe basis, a source said.

Zhengzhou Coal is the first company in its specialist industry to list in Hong Kong, but investors are likely to compare it to Chinese machinery companies such as Sany and Zoomlion, as well as international peers such as Caterpillar, the source said.

Sany is trading at a 2013 P/E multiple of about 9 times, while Zoomlion is quoted at 6.2 times and Caterpillar stands at around 9.6 times, according to Bloomberg.

The company’s proven track record, strong balance sheet and global customer base are among the attractions to potential investors, according to one source.

Zhengzhou Coal’s long-term objective is “to become a leading manufacturer of comprehensive coal mining and excavating equipment in the world”, according to a draft prospectus. It says the company plans to strategically increase its global presence and market share through acquisitions and joint ventures.

The company cited risk factors that include fluctuations in steel and other raw materials prices, and general economic and market conditions in China and globally.

According to the current timetable, the deal is expected to price on November 28, with the listing slated for December 5. The Hong Kong public offering is expected to start today (November 22) and continue until November 27.

Citic Securities, Deutsche Bank, J.P. Morgan and UBS are joint global coordinators and bookrunners for the deal.

¬ Haymarket Media Limited. All rights reserved.
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