Sany Heavy Industry Co. and Citic Securities Co. are pushing ahead with share sales in Hong Kong, where companies have canceled or delayed a record $14 billion of equity offerings this year as stock markets tumble.
Sany Heavy will raise as much as HK$26 billion ($3.3 billion), according to a term sheet. Citic Securities is marketing a $1.9 billion share sale after attracting early investors including Temasek Holdings Pte and Kuwait Investment Authority, people with knowledge of the deal said Sept. 16.
The two companies are braving a market where investors have lost money on 37 of the 48 companies that started trading this year and equity sales are on track for the slowest third quarter since 2008. Sany Heavy and Citic Securities may still appeal to investors speculating on China’s economic growth, said fund manager Binay Chandgothia of Principal Global Investors.
“Sany is the biggest machinery maker in China and Citic Securities is the biggest brokerage, so both are providing a compelling investment case,” said Hong Kong-based Chandgothia, whose firm oversees more than $200 billion. “Other companies may have to price shares cheap or struggle to get things done in such a market environment.”
Shanghai-listed shares of Sany Heavy, which is raising money to expand production lines, have gained 3.1 percent this year while Citic Securities has dropped 5.2 percent. The benchmark Shanghai Composite Index is down 13 percent in 2011.
Sany Heavy may use proceeds from the sale for acquisitions overseas, and plans to build factories in the U.S. and Germany, Tang Xiuguo, president of parent Sany Group Co., said in a group interview in Changsha City, Hunan province today. The company had already delayed the sale “several times” in 2011, and doing so again wouldn’t be “suitable,” he said.
“Selling shares today can help us become more globalized and seize more opportunities, which may be of greater value than delaying our offering for two months” to raise more money, said Tang.
Sany Heavy is offering 1.34 billion shares at HK$16.13 to HK$19.38 apiece, according to the term sheet. That’s a 12.1 percent discount to a 5.6 percent premium to the stock’s Shanghai closing price of 15.04 yuan on Sept. 16.
Pricing at the middle of the range would value Sany Heavy at 12.5 times estimated 2011 profit, a premium to Hong Kong-listed shares of Changsha Zoomlion Heavy Industry Science and Technology Development Co., according to Bloomberg data. Zoomlion, the second-biggest Chinese machinery maker by market value, trades at 10.2 times forecast 2011 profit, the data show.
XCMG Construction Machinery Co., which trades in Shenzhen, became the latest casualty of the equities rout as it delayed a Hong Kong stock sale of as much as $1.5 billion, people with knowledge of the matter said Sept. 16.
XCMG’s delay means almost $12 billion of share sales have been withdrawn or postponed in the city since May, as the benchmark Hang Seng Index plunged 18 percent, according to Bloomberg data.
That’s more than in any full year since Bloomberg began compiling the data, and exceeds the $11.4 billion in deals withdrawn or delayed in all of 2010. China Everbright Bank Co. scrapped a $6 billion offering in August, having considered cutting the size of the sale in half as stocks dropped.
“The IPO market is slowing down as it takes time for companies to adjust their pricing expectations following recent stock market declines,” said Will Li, head of equity capital markets for China at Deutsche Bank AG in Hong Kong.
Iron Ore Miner
Successful offerings by Sany Heavy and Citic Securities “would give the market a dose of encouragement,” he said.
The Bloomberg Hong Kong IPO Index, which measures the first-year performance of new stocks, is down 19 percent this year, as Europe’s debt crisis and evidence of a slowdown in the U.S. economy have driven investors out of stocks.
Also proceeding with offerings this week are Tenfu (Cayman) Holdings Co. and Xiao Nan Guo Restaurants Holdings Ltd., meanwhile. The two companies plan to price initial public offerings worth as much as a combined $277 million on Tuesday.
Last week, iron-ore miner China Hanking Holdings Ltd. revived plans to raise about $170 million. Hanking, which delayed its IPO in June, is scheduled to meet investors this week, two people with knowledge of the matter said.
Chinese consumer companies and insurers may be among industries that might find Hong Kong equity offerings easier to complete “given current macroeconomic dynamics,” Li said. Deutsche Bank is helping arrange the Hanking IPO.