Resourcehouse Ltd., the iron ore and coal company controlled by Australian billionaire Clive Palmer, pulled its planned initial public offering in Hong Kong for a fourth time, citing negative market conditions.
“The board of the company has decided not to proceed with the proposed global offering at this time given global market conditions and the fact that they continued to decline during and after the company’s international roadshow,” the company said in a statement posted on its website late yesterday.
Palmer’s advertising blitz of full page ads in Chinese and English-language newspapers for the $3.6 billion IPO in the past week failed to win over investors. The 57-year-old law school dropout who made his fortune in real estate doesn’t expect Resourcehouse to turn a profit until production at its coal and iron ore projects begins in 2014 or 2015.
“The offer was overpriced for the current status of the company - it is not an income-earning company,” Gavin Wendt, senior resource analyst at Mine Life Ltd., said by phone today. “For a lot of investors, particularly Asian investors where he targeted the float, they are used to dealing with companies that are generating earnings.”
Palmer has now pulled the IPO, which would have valued Resourcehouse at as much as $7.8 billion based on the share prices range, four times since first announcing plans in 2009. He would have retained a 53.67 percent stake in the company if the over-allotment option wasn’t exercised. The shares were due to start trading June 10.
Resourcehouse wants to develop an iron ore mine in Western Australia that will cost at least A$2.7 billion ($2.9 billion) and an $8.6 billion coal mine in Australia’s Queensland state. It is now considering how to develop those projects, it said in the statement. The company may launch the share sale again when market conditions improve, Palmer said in a phone interview from Hong Kong today.
“It doesn’t rule out going to the market at some later date when market conditions are better,” Palmer said. “We don’t have any debt, we’re in a sound financial condition. It will delay the coal project by five to six weeks. There are other funding arrangements we can look to.”
U.S. stocks fell last week, sending the Dow Jones Industrial Average to its longest streak of losses since 2004, and commodity prices have fallen 6 percent from an April high this year, according to the Thomson Reuters/Jefferies CRB Index of 19 raw materials.
Price Cut Considered
Palmer was considering cutting the price of the offering by as much as 30 percent to $2.5 billion, according to a term sheet on June 3. The company was considering selling shares at HK$3.45, down from the original range of HK$4.48 and HK$4.93, the term sheet showed.
Resourcehouse said in the statement that there was “no decision made at any time to change or modify the terms of the global offering.”
China Railway Group Ltd. and Metallurgical Corp. of China Ltd. had both agreed to invest about $200 million in Resourcehouse. The company said the IPO may have been followed by an A$1.9 billion debt sale to a Chinese company.
The number of basic material companies worldwide conducting IPOs this year has risen by 32 percent, according to data compiled by Bloomberg. There has been $17.3 billion raised this year, up 77 percent on last year. Commodity trader Glencore International Plc’s $9.8 billion raising is the biggest in the sector so far.
Payments to Palmer
BOC International Holdings Ltd., HSBC Holdings Plc, Royal Bank of Scotland Group Plc and UBS AG managed the Resourcehouse offering. Palmer was ranked as Australia’s fifth-richest man with a fortune of A$5.05 billion according to BRW magazine’s rich list published last month.
The IPO may have delivered A$1.1 billion to Palmer’s closely held companies, according to the prospectus for the share sale. The payments would have included as much as A$310 million annual for at least three years to Mineralogy Pty., owned and chaired by Palmer, to help fund development of an iron ore mine. That includes A$250 million a year toward the construction of a port that will be owned by Citic Pacific Ltd.
Once Resourcehouse’s mines start production, Palmer would have received annual payments of A$25 million in coal royalties and A$15 million a year in iron ore royalties. Mineralogy and Waratah Coal Inc., another company owned by Palmer, remain the owners of the mines and Resourcehouse has an agreement to extract specific quantities.