WH Group Ltd. (288), the world’s biggest pork supplier, is poised to raise about $1.3 billion in an initial public offering that had been cut by more than half because of slack investor demand, said people with knowledge of the matter.
The company plans to sell 1.3 billion new shares at around HK$8 ($1.03) each, the low end of a marketed range, said the people, asking not to be identified because the information is private. WH Group is due to set a final price tomorrow after offering the shares at HK$8 to HK$11.25, according to revised terms for the deal obtained by Bloomberg News on April 23.
The Chinese owner of Smithfield Foods Inc. is settling for an IPO that’s about a quarter of the size it originally targeted as investors shun new equity and as growth in pork demand eases in China. Shareholders including Goldman Sachs Group Inc. (GS) and Temasek Holdings Pte had to abandon plans to sell stock as part of the offering after orders fell short of expectations.
At HK$8 a share, the sale would value WH Group at about 15 times estimated 2014 profit, one of the people said. Huisheng International Holdings Ltd. (1340), a Chinese pork supplier that raised $32 million in a Hong Kong IPO in February, is trading at 3.7 times 2013 earnings, data compiled by Bloomberg show.
Growth in pork consumption in China slowed to 1.55 million metric tons last year from 2.81 million tons in 2012, WH Group said in its IPO prospectus, citing estimates from Frost & Sullivan.
“The government crackdown on corruption and excessive consumption has significantly curbed pork demand,” in addition to a slowing economy, said Feng Yonghui, general manager at Beijing-based hog researcher Soozhu.com. Consumption of pork may have dropped as much as 10 percent after President Xi Jinping’s campaign for frugality, he said.
Xi, who became general secretary of China’s Communist Party in November 2012, has ordered officials to be frugal as he tries to unwind a culture of bribery and graft that has hurt the government’s legitimacy and jeopardized economic growth. China’s economy is projected to expand 7.3 percent this year, the slowest pace since 1990, based on the median estimate in a Bloomberg survey this month.
Companies that completed IPOs in Hong Kong this year have fallen on average 5.2 percent from their offer prices after adjusting for deal size, according to data compiled by Bloomberg.
Even after the size cut, WH Group’s sale would be Hong Kong’s second-biggest IPO this year. Power Assets Holdings Ltd., controlled by Asia’s richest man Li Ka-shing, raised $3.1 billion in the offering of HK Electric Investments in January, according to data compiled by Bloomberg. HK Electric shares have lost 3.3 percent since they started trading.
WH Group and existing investors were originally seeking as much as $5.3 billion in the IPO, according to an April 15 prospectus filed to the Hong Kong stock exchange. The company cut the deal size last week to as much as $1.9 billion, the revised terms show.
A Hong Kong-based external spokeswoman for WH Group declined to comment on the pricing. WH Group plans to start trading on May 8, the terms show.
WH Group changed its name from Shuanghui International Holdings Ltd. in January. Shuanghui International bought Smithfield Foods for $4.7 billion in September in the biggest Chinese purchase of a U.S. firm.
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