Sun Art Said to Seek $1.05 Billion, Pricing Hong Kong IPO at Top of Range
Sun Art Said to Plan Hong Kong IPO Price at Top of Range
Keith Bedford/Bloomberg
A man rides and electric bicycle past a Sun Art Retail Group Ltd. RT-Mart in Beijing, China, on Friday, July 1, 2011.
A man rides and electric bicycle past a Sun Art Retail Group Ltd. RT-Mart in Beijing, China, on Friday, July 1, 2011. Photographer: Keith Bedford/Bloomberg
Sun Art Retail Group Ltd., China’s largest hypermarket operator, raised HK$8.2 billion ($1.1 billion) selling shares at the top end of a range in a Hong Kong initial public offering, people with knowledge of the deal said.
The Shanghai-based company, which competes with Wal-Mart Stores Inc. (WMT) in China, sold shares at HK$7.20 apiece, said the two people. They declined to be identified as the process is private.
Sun Art braved a slump in demand for new equity that caused seven companies to cancel or postpone IPOs in Hong Kong in the past three months. The sale was the second of city’s six billion-dollar-plus IPOs this year to be priced at the top end of its marketed range, valuing Sun Art at 31.5 times estimated 2011 earnings.
“Investors are being selective in the absence of strong market sentiment, allowing only quality companies to have high valuations in IPOs,” said Nelson Yan, who helps oversee $90 million as investment manager at Mayfair Pacific Financial Group, which subscribed for Sun Art shares in the IPO.
Sun Art originally offered the shares for HK$5.65 to HK$7.20 each, according to its IPO prospectus. Yan said the final valuation for Sun Art is “marginally acceptable, given that the company is well-managed with strong growth prospects.”
Casino venture MGM China Holdings Ltd. was the only other Hong Kong IPO of at least $1 billion to receive the maximum valuation sought, data compiled by Bloomberg show.
Profit Forecast
Sun Art, backed by France’s Groupe Auchan SA, is the largest hypermarket operator in China, with a 12 percent share of sales last year compared with Wal-Mart’s 11.2 percent, according to Euromonitor International Ltd. Hypermarket sales in China rose 17 percent last year, Euromonitor data show.
The IPO may lead to tougher competition for Wal-Mart in China. Sun Art plans to use about half of the proceeds to cement its leading position by opening new outlets, and 30 percent to repay bank loans, according to the IPO prospectus. Groupe Auchan will own 62 percent of Sun Art after the offering.
Sun Art forecasts 2011 profit of at least 1.4 billion yuan ($216 million), according to the prospectus. Based on that level, the sale gives Sun Art a price-earnings ratio of 40.
Hong Kong-listed Wumart Stores Inc. (8277) and Lianhua Supermarket Holdings Co., which run hypermarkets, supermarkets and convenience stores in China, trade at 30.4 times and 21.8 times projected full-year profit respectively based on yesterday’s closing prices, Bloomberg data show.
GIC Invests
About half the stock sold in the IPO will go to nine so- called cornerstone investors, including Government of Singapore Investment Corp. and Tiger Global Management LLC, which agreed to invest $40 million each, according to the prospectus.
Citigroup Inc. (C), HSBC Holdings Plc and UBS AG (UBSN) are managing the offering as global coordinators, while BNP Paribas (BNP) SA, China International Capital Corp., Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS) are joint bookrunners, the prospectus shows. Sun Art will start trading in Hong Kong on July 15.
Sun Art posted profit of 1 billion yuan last year on sales of 56.2 billion yuan, the prospectus shows. First-quarter profit surged 32 percent to 522 million yuan from a year earlier while sales rose 27 percent to 19.8 billion yuan.
Wal-Mart, the world’s biggest listed company by sales, has annual revenue of $7.5 billion in China, Scott Price, its chief executive officer for Asia, said in March. The Bentonville, Arkansas-based retailer may buy more land in China, which it said may be the world’s largest grocery market by 2014.
To contact the reporter on this story: Fox Hu in Hong Kong at fhu7@bloomberg.net
To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net
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