China Tianrui Cement launches Hong Kong IPO


Updated Thu, 15 Dec 2011 00:00:00 GMT

China Tianrui Group Cement, a leading clinker and cement producer in the Henan and Liaoning provinces, yesterday kicked off both the institutional roadshow and the retail offering for an initial public offering of between HK$996.17 million and HK$1.45 billion ($124 million to $186 million).

The company is offering 400.9 million shares at a price ranging from HK$2.41 to HK$3.61 each, according to a term sheet. The deal size could be increased to as much as $214 million if the 15% greenshoe is exercised in full. The offering accounts for 16.7% of the equity capital pre-shoe and 18.7% post-shoe. All the shares are new.

The cement producer has set aside 10% of the deal for Hong Kong retail investors and will offer the remaining 90% to institutional investors.

China Tianrui hits the market after a score of companies have flocked to Hong Kong in recent weeks to grab the last window to launch an IPO this year. The list of large-scale issuers include Chow Tai Fook Jewellery and New China Life Insurance, which have raised $2.0 billion and $1.9 billion respectively and are both scheduled to start trading today.

Although the overall response has been rather cautious — most of the IPOs have priced either at or near the bottom of the indicated ranges and seen weak demand from retail investors — Hong Kong is on its way to becoming the world’s top destination for new listings in 2011 for the third year in a row, according to Dealogic.

While China Tianrui hasn’t signed up any cornerstone investors, it does have the support of three pre-IPO investors who will own a combined 52.5% of the company after listing and are subject to a six-month lock-up. They are: Titan Investments, which is majority owned by KKR Asian Fund; JP Morgan PCA, a wholly-owned subsidiary of JP Morgan Private Capital Asia Fund I; and Wan Qi, a wholly-owned subsidiary of the company’s non-executive director.

The price range values China Tianrui at a 2012 price-to-earnings (P/E) ratio of 2.4 times to 3.6 times, according to the joint bookrunners’ estimate. That puts it at a discount to its primary comparables, including China Shanshui Cement Group, which trades at about 4.2 times, a source said.

China Tianrui plans to use about 95% of the proceeds from the global offering for debt repayments and the remaining 5% for general working capital.

The company’s strength lies in its position as the biggest producer of clinker in Henan and Liaoning, the largest cement producer in Henan and the second-biggest cement producer in Liaoning, it said in a listing document published on the Hong Kong stock exchange website.

The company also noted that it has benefited from China’s fast-growing economy, large infrastructure development projects, including those under the government’s Rmb4 trillion ($625 billion) stimulus package, and the government policies to phase out obsolete cement production capacity. It also expects to benefit from the government’s plan to develop 36 million affordable housing units for low-income urban residents by 2016.

As of the end of June, China Tianrui’s annual production capacity of clinker and cement amounted to 22.2 million and 35.2 million tonnes, respectively. That makes it the 10th largest cement producer in terms of production volume and the 11th largest clinker producer in terms of production capacity in China, according to the company’s website.

It is a primary cement provider for many high-profile and large-scale infrastructure projects in China, such as the South-North Water Transfer Project.

The management roadshow and the Hong Kong public offering will both close on December 19, when the final price is expected to be set. The listing is scheduled for December 23.

The deal is being arranged by BOC International, Bocom International, CCB International and Deutsche Bank.

Reflecting the jittery mood in the market, China Polymetallic Mining and Baoxin Auto Group both had a disappointing first day when they started trading yesterday, despite the fact that Hong Kong’s benchmark Hang Seng Index was virtually flat.

China Polymetallic, a lead, zinc and silver miner that raised $143 million from its IPO, ended its first day of trading at HK$1.35, nearly 40% below its IPO price of HK$2.22.

Baoxin Auto, a luxury auto dealer specialising in BMWs, fared slightly better but still finished down 14% at HK$7.30. The company raised $414 million from its IPO, which was priced at HK$.8.50 per share.

The big focuses for today are the trading debuts of Chow Tai Fook Jewellery and New China Life’s H-shares. The Chinese insurer’s A-shares will start trading in Shanghai tomorrow.