Billionaire Palmer’s Resourcehouse May Cut Price of Hong Kong IPO by 30%
Resourcehouse Ltd., Australian billionaire Clive Palmer’s coal and iron-ore company, may cut the price of its Hong Kong initial public offering as much as 30 percent to $2.5 billion after a slide in share markets.
The company is offering 5.7 million shares and may offer stock at HK$3.45 (44 cents) each, down from the original range of HK$4.48 to HK$4.93, according to a term sheet for the transaction. No decision to cut the price has yet been taken, Palmer, 57, said when contacted by mobile phone.
“We haven’t made a decision either way yet,” Palmer said. “The day of pricing is today.”
Palmer, who had already postponed the offering at least three times, wants the money to fund construction of mines in Australia. Iron ore prices have fallen 12 percent from the peak in China this year and Asia Pacific’s benchmark stock index dropped for four straight weeks, damping investor sentiment.
“He may have missed the boat by six months or so in terms of getting an ideal price but equally it still makes sense to get a listing to raise capital and make acquisitions,” Michael McCormick, a fund manager at Belvedere Share Managers Pty in Sydney, said by phone.
Following the IPO, Resourcehouse will pay as much as A$1.1 billion ($1.2 billion) to Palmer’s closely held companies, including A$930 million over the three years to 2014. The payments, which include A$250 million a year toward the cost of constructing a port, would be made before the Brisbane, Australia-based company is forecast to make a profit in 2014 or 2015.
Investors may also be concerned by the structure of the initial public offering, Lucinda Chan, division director and head of Asian business at Macquarie Private Wealth in Sydney, said by phone.
Iron ore prices in China have dropped from this year’s peak of $191.90 a metric ton on Feb. 16 to close yesterday at $168.80. The S&P/ASX 200 Resources Index has fallen 11 percent since its April 11 peak as investors worry about the European debt crisis and tightening measures in China dampening economic growth and demand for commodities.
Hong Kong IPOs have raised at least $8.9 billion so far this year, up 55 percent on a year earlier, according to data compiled by Bloomberg. Huaneng Renewables Corp., the wind-power unit of China’s biggest electricity producer, today raised HK$6.23 billion in its IPO, two people with knowledge of the matter said.
The company planned to sell at least 5.7 billion shares. Palmer, a law school dropout who made his fortune in real estate, will retain a 53.67 percent stake if an over allotment option to sell 857 million more isn’t exercised. The shares are scheduled to start trading June 10.
Palmer, 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, has pulled the IPO at least three times since first announcing plans in 2009.
Once Resourcehouse’s mines start production, Palmer will receive annual payments of A$25 million in coal royalties and A$15 million a year in iron ore royalties. Mineralogy Pty and Waratah Coal Inc., both owned by Palmer, remain the owners of the mines and Resourcehouse has an agreement to extract specific quantities.
The number of basic material companies worldwide conducting IPOs this year has risen by 33 percent, according to data compiled by Bloomberg. There has been $17.3 billion raised so far 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.
Commodities posted the biggest monthly drop in a year last month as the sovereign-debt crisis in Europe and accelerating inflation in China fanned speculation the global economic growth will slow.
China Railway Group Ltd. (390) and Metallurgical Corp. of China Ltd. have both agreed to invest about $200 million in Resourcehouse.
BOC International Holdings Ltd., HSBC Holdings Plc, Royal Bank of Scotland Group Plc and UBS AG are managing the sale.
Resourcehouse wants at least one Chinese company to provide or arrange debt to fund about 70 percent of the cost of the building the initial stage of the China First iron ore project, the Brisbane, Australia-based company said in the prospectus. Any financing deal needs the approval of Mineralogy.