Aggressive companies heat up IPO market in China
Updated: 2007-03-06 11:23
 Investors look at stock information at a securities company in Shanghai February 27, 2007. [newsphoto]  |
HONG KONG: Fast-growing companies looking to finance aggressive business plans have lifted the value of initial public offerings in China nearly fourfold, with investment bankers scouring the country for even more listing candidates.
Total issuance of midsize offerings — loosely defined as in the range of $150 million to $750 million — hit $6.2 billion last year, an increase of nearly four times from 2004, according to Dealogic, a multinational consultancy.
With more deals on the way, investor demand for these offerings looks robust despite recent stock market turmoil.
Investment bankers are tapping their venture capital, wealth-management and industry sources to find potential listing candidates, typically from the manufacturing, property and consumer-related sectors.
"It's a more intense and expansive model," said George Taylor, a managing director in global capital markets for Morgan Stanley in Hong Kong.
"The majority of IPOs so far have been companies based in Shanghai, Beijing or Guangdong. Increasingly, now, they will come from farther north and farther west," he said.
Morgan Stanley has been the busiest underwriter of midcap IPOs in China since the beginning of 2004, according to Dealogic, arranging nearly $2.2 billion worth of deals and forging ties with companies like Shimao Property and China Mengniu, a top milk producer.
In a sign of how competitive the market has become, Merrill Lynch recently poached Rodney Tsang from Credit Suisse to head its China private-sector coverage.
"This group of companies has the potential of offering a lot of follow-on business like block trades and convertible bonds," said Will Li, a managing director in China investment banking for UBS.
"A lot of the midcaps today will become large caps in a year or two because of the pace of the growth they are experiencing," he said.
The advertising company Focus Media and the electronics retailer Gome are examples of private-sector companies that have become big market players since going public.
Banks have cultivated relationships with venture capital firms, which make small early investments in young companies, to find businesses in some of China's more obscure regions.
"We work quite well with some of the private equity investors," said Janice Hu, vice chairman for China investment banking at Credit Suisse, which has close ties with Focus Media.
"You also win the trust of entrepreneurs and get good word of mouth going to their friends who are looking for similar financing," she said. "If you can identify the companies early, you have time to build the relationship."
Huiyan Juice Holdings is the latest private-sector success story. Its shares have jumped 46 percent since making their Hong Kong debut Feb. 23 in a $308 million deal underwritten by UBS.
The women's footwear retailer Belle Holdings and the Beijing-based developer Soho China are among the companies planning midsize IPOs this year.
"This will be a phenomenon that will last for a long time," said Charles Wang, head of global banking in China for Deutsche Bank.
China Minsheng plans offer
China Minsheng Banking plans to list in Hong Kong in the second half of the year, seeking to raise at least $10 billion Hong Kong dollars, or $1.3 billion, the bank's chairman, Dong Wen-biao, said Monday.
He said Minsheng had raised about 20 billion yuan, or $2.6 billion, through a private placement of two billion shares, lifting the company's capital-adequacy ratio to about 13 percent. The number of shares placed was much lower than had been previously announced, he said.
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