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China CNR IPO could raise up to $1.42 billion

Updated: 2014-05-13 07:19
By Emma Dai in Hong Kong ( China Daily)

China CNR Corp Ltd, the country's second-largest train maker, published its Hong Kong initial public offering plan and opened subscriptions on Monday. The IPO is expected to raise as much as HK$11 billion ($1.42 billion).

The Beijing-headquartered company plans to sell 1.82 billion shares globally with 182.12 million offered in Hong Kong. The subscription price is from HK$5 to HK$6.20 per share.

Subscriptions close on May 15 and trade is expected to start on May 22. UBS AG, China International Capital Corp Ltd and Macquarie Group Ltd are joint managers of the offering.

CNR has reportedly secured three cornerstone investors - Dongfeng Motor Co Ltd is investing $40 million, while a Hong Kong subsidiary of China National Machinery Industry Corp and Shanghai-listed Jinxi Axle Co Ltd are set to buy $30 million worth of shares each.

The listing of CNR is the latest in a pipeline of companies trying to debut in Hong Kong this year. Not all the companies' plans worked out.

The world's largest pork meat processor WH Group, previously known as Shuanghui International, dropped its plan to generate as much as $5.3 billion in Hong Kong on April 29. The aborted offering would have been the biggest in three years.

It got a lukewarm reaction from global investors.

Alibaba Group Holding Ltd, China's largest shopping website, and AS Watson Group also pulled their multibillion-dollar IPOs in Hong Kong.

"The CNR offering is a sizable one," Stanley Chik, research manager of Bright Smart Securities in Hong Kong, said. "There could be a lot of pressure given that market sentiment is not excited at this moment. Till the mid of this year, we think the atmosphere would remain prudent. It could be hard, particularly for larger-sized IPOs."

He pointed out that sentiment is not so bad as to kill all IPOs.

Unlike "WH Group, CNR's outlook is clear," Chik said. The "Chinese government is supporting the transportation sector. The prospectus shows that CNR's profit has been growing at a steady rate in the past three years. If the policy is supportive, their pace could be faster in upcoming years."

CNR President Cui Dianguo told a Hong Kong roadshow on May 9 that the timing is an intelligent decision and management is confident about the offering, given the long-term outlook of China's railway business.

He said the company should see the share of overseas business in total revenue rise to one-fifth in two to three years. At the end of 2013, CNR received 7.58 billion yuan ($1.23 billion) from overseas markets, or 7.8 percent of total revenue.

On May 2, China Railway Corp,, the state-controlled commercial entity spun off by the Ministry of Railways, raised its annual spending target from 720 billion yuan to 800 billion yuan in 2014. Planned projects also rose to 64 from 48 this year.

Goldman Sachs said in a research report the IPO is a proof of China's commitment to developing its domestic railway and the sector is long-term positive.

"In general, CNR appears to be worth buying," Gary Wong, an industrial analyst at Guotai Junan Securities in Hong Kong, said. "The valuation is quite low." CNR performed better than its rival CSR last year, in both profit and revenue terms, he said.

Listed on the Shanghai stock exchange, CNR rose 1.95 percent on Monday to close at 4.70 yuan per share, while CSR Corp Ltd, China's biggest train maker, gained 1.83 percent to 4.45 yuan per share in Shanghai on the same day. CSR shares in Hong Kong fell 1.86 percent to HK$5.81 on Monday.

emmadai@chinadailyhk.com

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