Sany, CITIC plan HK IPOs despite market weakness

Updated: 2011-09-20 11:37

By Fox Hu (China Daily)

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HONG KONG - Sany Heavy Industry Co and CITIC Securities Co are pushing ahead with share sales in Hong Kong, where companies have canceled or delayed a record $14 billion of equity offerings this year as stock markets tumble.

Sany Heavy will raise up to HK$26 billion ($3.3 billion), according to a term sheet. CITIC Securities is marketing a $1.9 billion share sale after attracting early investors including Temasek Holdings Pte and Kuwait Investment Authority, people with knowledge of the deal said on Sept 16.

The two companies are braving a market where investors have lost money on 37 of the 48 companies that started trading this year and equity sales are on track for the slowest third quarter since 2008.

Sany Heavy and CITIC Securities may still appeal to investors speculating on the mainland's economic growth, said fund manager Binay Chandgothia of Principal Global Investors.

"Sany is the biggest machinery maker on the mainland and CITIC Securities is the biggest brokerage, so both are providing a compelling investment case," said Hong Kong-based Chandgothia, whose company oversees more than $200 billion. "Other companies may have to price shares cheap or struggle to get things done in such a market environment."

Shanghai-listed shares of Sany Heavy, which is raising money to expand production lines, have gained about 4 percent this year while CITIC Securities dropped 4.5 percent.

Sany Heavy is offering 1.34 billion shares at HK$16.13 to HK$19.38 a share, according to the term sheet.

Pricing at the middle of the range would value Sany Heavy at 12.5 times estimated 2011 profit, a premium to Hong Kong-listed shares of Changsha Zoomlion Heavy Industry Science and Technology Development Co, according to Bloomberg data.

Zoomlion, the second-biggest mainland machinery maker by market capitalization, trades at 10.2 times forecast 2011 profit, the data showed.

XCMG Construction Machinery Co, which trades in Shenzhen, became the latest casualty of the equities rout as it delayed a stock sale of as much as $1.5 billion, people with knowledge of the matter said on Sept 16.

XCMG's delay means almost $12 billion of share sales have been withdrawn or postponed since May, as the benchmark Hang Seng Index plunged 18 percent.

China Everbright Bank Co scrapped a $6 billion Hong Kong offering in August, having considered cutting the size of the sale in half.

"The IPO market is slowing down as it takes time for companies to adjust their pricing expectations following recent stock market declines," said Will Li, head of equity capital markets for China at Deutsche Bank AG in Hong Kong.

Successful offerings by Sany Heavy and CITIC Securities "would give the market a dose of encouragement", he said.

The Bloomberg Hong Kong IPO Index, which measures the first-year performance of new stocks, is down 19 percent this year, as Europe's debt crisis and evidence of a slowdown in the US economy have driven investors out of stocks.

Also proceeding with offerings this week are Tenfu (Cayman) Holdings Co and Xiao Nan Guo Restaurants Holdings Ltd. The two plan to price IPOs worth as much as a combined $277 million on Sept 20.

Last week, iron ore miner China Hanking Holdings Ltd revived plans to raise about $170 million.

Hanking, which delayed its IPO in June, is scheduled to meet investors this week, two people with knowledge of the matter said.

Bloomberg News