July 25, 2018 / 5:20 AM / in 4 months

Breakingviews- China Tower offering sends the right signals

China Tower Corporation Limited Chairman, Executive Director and General Manager Tong Jilu attends a news conference on the IPO of the company in Hong Kong, China July 24, 2018. REUTERS/Bobby Yip

HONG KONG (Reuters Breakingviews) - China Tower’s initial public offering is sending the right signals. The mobile-mast giant has set a fair price range for its Hong Kong IPO, which could raise nearly $9 billion. It has also limited the amount of stock sold to so-called cornerstone investors, attracting more than just friends and family. That’s a refreshing change from the usual way Chinese state-owned entities are dumped in Hong Kong.

The city is a go-to venue for Beijing’s giants to raise foreign capital, but many such deals in recent years have been cosy affairs. The last jumbo IPO of an SOE was in 2016 when Postal Savings Bank of China (1658.HK) raised over $7 billion; nearly 80 percent was pre-ordered by a hodgepodge of other state-backed firms including a port operator and a shipbuilder. This tactic has been key to getting deals done at expensive valuations unappealing for global investors. 

That’s why the latest offering stands out from the crowd. Cornerstones have only been allotted 16 percent of the offer. This should help liquidity when the company debuts in August as anchor investors are typically locked up for six months, meaning limited shares are available for trading if they buy most of the stock. 

Meanwhile, the price range values China Tower at 6.5 to 7.3 times estimated 2019 EBITDA, according to Thomson Reuters publication IFR. That looks inexpensive compared to India’s Bharti Infratel and Indonesia’s Tower Bersama, which trade at 7.6 and 10 times, respectively. Reasonable pricing will have helped the cornerstone roster to attract respected institutional firms including Chinese investment firm Hillhouse Capital and U.S. hedge fund Och-Ziff. 

The next key test will be how it fares in secondary trading. Five Hong Kong IPOs in 2016 worth more than $1 billion that sold most of their stock on offer to SOE-heavy cornerstone books have since fallen an average of 11 percent from their issue price, with most underperforming the Hang Seng Index. A strong performance by China Tower could convince others of the merits of this friendlier approach.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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