Huarong Draws State Enterprises to Scaled-Back $2.5 Billion IPO

  • Cornerstone investors to buy up to 71% of Huarong offering
  • Bad-loan manager's current owners scrap plans to offload stock

China Huarong Asset Management Co., the nation’s biggest bad-loan manager, is seeking to raise as much as $2.5 billion from a scaled-back initial public offering in Hong Kong.

The company is offering 5.77 billion new shares at HK$3.03 to HK$3.39 apiece, after two existing investors decided not to sell stock in the deal, according to a term sheet obtained by Bloomberg on Thursday. Ten firms agreed to buy a combined $1.61 billion of shares as cornerstone investors, accounting for 71 percent of the IPO at the low end of the marketed range, the terms show.

Huarong attracted cornerstone investments from a group of mostly state-owned enterprises to help it complete Hong Kong’s biggest IPO since the start of a $5 trillion Chinese stock rout. The deal will add to the $21 billion raised through first-time share sales in the city this year, data compiled by Bloomberg show.

Sino-Ocean Land Holdings Ltd. will buy $680 million of stock in the offering, while State Grid Corp. of China will invest $300 million, according to the terms. Hong Kong’s Emperor Group, which runs jewelry, brokerage and entertainment businesses, and its chairman Albert Yeung will invest a combined $100 million.

China General Nuclear Power Corp. and China Ocean Shipping Group Co., known as Cosco, will each buy $50 million of stock. Cornerstone investors typically agree to hold on to their stock for six months in return for guaranteed allocation.

Two Huarong shareholders, China’s Ministry of Finance and Cofco Corp., were previously planning to sell shares in the offering, which would have brought the IPO size to $2.8 billion, people with knowledge of the matter said earlier this month. The deal now includes only new shares being sold by Huarong.

Huarong is one of four Chinese companies set up by the government in 1999 to clean up state-owned banks. The bad-loan manager had more than 600 billion yuan ($94.6 billion) of total assets at the end of last year, its website shows.

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