Haitong's $1.77 billion offer tests Hong Kong demand for listings

HONG KONG Tue Apr 17, 2012 10:50am IST

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HONG KONG (Reuters) - Haitong Securities Co Ltd (600837.SS), China's No.2 brokerage by assets, launched on Tuesday an up to $1.77 billion Hong Kong share offering, testing investor appetite as the market emerges from a rough patch that scuppered similar plans last year.

At the top end of the indicative range the deal is set to be Asia's biggest public offering so far this year and its outcome will be closely watched by a growing list of companies eager to tap equity capital markets in Asia's top destination for IPOs.

Last year's market turmoil forced Haitong to pull a similar-sized offer in December but an 11 percent rally in Hong Kong's benchmark Hang Seng index .HSI since the beginning of the year has emboldened companies such as China Everbright Bank (601818.SS) and construction giant Sany Heavy Industry Co Ltd (600031.SS) to revive their listing plans.

Others, like London-based high-end jeweler Graff Diamonds, have taken initial steps on planned listings, prompting investment bankers to bet on a booming second quarter of 2012.

Still, the structure of the Haitong offer shows the company and its advisers are taking no chances after December's flop, setting aside about one-third of the deal for so-called cornerstone investors.

That structure "definitely helps to ensure that the deal will go through," said Rachel Li, an analyst at Macquarie Capital Securities in Hong Kong.

"The pricing is very reasonable in an environment like this and you still have a short-term catalyst coming up," she added, referring to an expected rebound in Chinese stock markets.

The company is selling up to 1.229 billion new shares (6837.HK) at an indicative price range of HK$10.48 to HK$11.18 each, it said in a securities filing.

At the top of the range, the stock sale would total HK$13.74 billion ($1.77 billion), making it the largest public offering in Asia Pacific so far this year and the largest in Hong Kong since the $1.9 billion New China Life Insurance Co Ltd (601336.SS) (1336.HK) dual listing in the city and Shanghai in December.

Haitong is offering the Hong Kong shares at a price to book ratio of 1.30 to 1.38 times, below 1.9 for its Shanghai listed shares and 1.5 for larger rival Citic Securities. Chinese brokerages in Shanghai trade at an average P/B ratio of 2.19, according to Deutsche Bank estimates.

Haitong marketed its Hong Kong offering in December at a 2012 price-to-book ratio of 1.17 to 1.32 times. The company's Shanghai-listed stock has jumped 22 percent since December 12 when it scrapped plans for the Hong Kong offer, pushing its valuation higher, but it remains below rivals.

The stock was down 1.8 percent in early afternoon trading in Shanghai, compared with a 0.2 percent drop in the benchmark Shanghai Composite Index .SSEC.

Haitong is slated to price the offer on Friday, with shares beginning to trade in Hong Kong on April 27.

According to a prospectus Haitong plans to use the proceeds to fund overseas takeovers and grow its margin finance, hedge fund and private equity businesses.

CORNERSTONE INVESTORS

Pan-Asia private equity firm PAG and U.S. asset manager DE Shaw & Co Ltd were among 11 cornerstone investors that pledged to buy about $580 million worth of Haitong's shares in the deal, according to the terms of the offering.

PAG, headed by former TPG Capital dealmaker Weijian Shan, agreed to buy $300 million worth of shares, with New York-based DE Shaw pledging $100 million. Other cornerstone investors included Japan's SBI Holdings (8473.T), Taiwanese brokerage KGI Securities 6008.TWO, Dah Sing Bank (2356.HK) and The Oman Fund.

The deal also had "significant demand" from so-called anchor investors, one source involved in it said on Thursday.

Cornerstones back many Asian listings, committing to buy large, guaranteed stakes and agreeing to a lock-up period during which they will not sell their shares. Anchor investors have fewer restrictions on when they can sell the stock.

Haitong had scrapped a deal in December to raise up to $1.7 billion, citing turmoil in global markets.

At the time the company had $222 million in pledges from two cornerstone investors, private equity firm Warburg Pincus LLC WP.UL and Japan's Chuo Mitsui Trust & Banking Co, a unit of Sumitomo Mitsui Trust Holdings Inc (8309.T).

Citigroup Inc (C.N), Credit Suisse AG (CSGN.VX), Deutsche Bank (DBKGn.DE), JPMorgan (JPM.N), UBS (UBSN.VX) and Haitong's own Haitong International are acting as joint global coordinators on the offering.

BoCom International, HSBC Holdings Plc (HSBA.L)(0005.HK), ICBC International, Nomura and Standard Chartered Plc (STAN.L) were also hired as joint bookrunners.

($1 = 7.761 Hong Kong Dollars)

(Additional reporting by Fiona Lau and Jing Song; Editing by Ramya Venugopal and Jonathan Hopfner)

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