Xiwang Special Steel raises USD 171 million from Hong Kong IPO
Resource from: CBCC Likes:2993
Feb 23,2012
Chinese steelmaker Xiwang Special Steel has raised HKD 1.33 billion from the first initial public offering of size in Hong Kong this year. Investors weren’t exactly rushing into the deal, though and according to sources the stock was mainly bought by a few hedge funds and global funds with a specific view on steel and who thought the valuation was cheap.
However with analysts divided about the near-term outlook for the Chinese economy, cyclical stocks like steelmakers aren’t an obvious buy and some investors argued that the stock was cheap for a good reason and could stay at these levels for a while.
Indeed, according to its listing prospectus, Xiwang has been selling less steel at lower prices since September 2011 due to weakened demand and falling steel prices in China. However the company says its gross profit margin has not been significantly affected as the decrease in the average selling price of its steel products has been accompanied by a drop in raw material costs.
On the other hand, if China continues to ease monetary policy, that should help increase the demand for steel and other construction materials. Another signal that the People’s Bank of China is moving towards a rate cut came on Friday when the central bank announced a 50bp reduction of the reserve requirement ratio from February 24th 2012.
Citi analysts noted that the easing should help dismiss worries over policy inaction and boost businesses confidence in their capital planning. We expect more policy easing as first quarter growth may fall to 8% or lower. Fiscal policy should become more active following the passage in March of the budget and property tightening measures including the purchase restriction could be relaxed by the middle of the year.
Xiwang is an electric arc furnace steel manufacturer, which means it makes steel and steel products from steel scraps rather than from iron ore. It is the biggest company of its kind in Shandong province, where steel scraps are particularly prevalent. As of the end of September last year, it had an aggregate smelting capacity of about 1 million tonnes and an aggregate designed annual rolling capacity of 1.6 million tonnes. Among its special steel products are seamless steel pipes, bearings, gearings and steel welding wires.
According to a source, the order book was very price sensitive, which is in line with the response to most other equity offerings in Asia right now. Hence it was no big surprise that it priced at the bottom even though the overall range didn’t look particularly demanding. The deal accounted for 25% of the share capital and comprised 500 million shares of which 80% were new. They were offered in a range between HKD 2.65 and HKD 3.36 which translated into 2012 price to earnings multiple of 3.8 times to 4.8 times.
At the final price of HKD 2.65, the stock comes at a discount to China Oriental Group which trades at about 5 times this year’s earnings and is viewed as the closest comparable. It also offers a discount versus other special steel producers in China, which trade at an average 2012 P/E multiple of about six.
There was not much information about the institutional portion of the deal, except that it was fully covered and that most of the investors who participated in the transaction were based in Asia. The retail tranche which accounted for 10% of the deal was about 1.6 times covered.
(CBCC)
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1.The news above mentioned with detailed source are from internet.We are trying our best to assure they are accurate ,timely and safe so as to let bearing users and sellers read more related info.However, it doesn't mean we agree with any point of view referred in above contents and we are not responsible for the authenticity. If you want to publish the news,please note the source and you will be legally responsible for the news published.
2.All news edited and translated by us are specially noted the source"CBCC".
3.For investors,please be cautious for all news.We don't bear any damage brought by late and inaccurate news.
4.If the news we published involves copyright of yours,just let us know.
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