Sinopec Engineering Said to Raise $1.8 Billion in IPO

Sinopec Engineering Group Co., a unit of China’s biggest refiner, raised $1.8 billion in Hong Kong’s largest initial public offering this year.

The Beijing-based unit of China Petrochemical Corp. sold 1.33 billion shares at HK$10.50 each, near the low end of a marketed range, said two people with knowledge of the matter. The final price values the company at about 9.6 times estimated 2013 earnings, one of the people said, asking not to be identified as the information is private.

The sale brings the value of Hong Kong IPOs in May to $2.9 billion, the highest monthly total since November, when People’s Insurance Company (Group) of China Ltd. raised $3.6 billion, data compiled by Bloomberg show. Hong Kong’s stock benchmark has risen 7 percent in four weeks, reversing a decline that diminished appetite for new stocks in the city.

“Market sentiment has improved and bankers say things are way better than six months ago,” said Philippe Espinasse, a former equity capital markets banker at UBS AG and Nomura Holdings Inc. “Sinopec Engineering has gone well with high-quality demand by institutional investors and is reasonably priced.”

Companies raised $1.1 billion from initial share sales in Hong Kong in the first quarter, the least since early 2009, data compiled by Bloomberg show.

It was a sign of improving investor confidence that Galaxy Securities Co. increased the retail portion of its $1.1 billion IPO to 30 percent from the usual 10 percent, Espinasse said. Galaxy set the price for that sale yesterday.

Cornerstone Cancellation

Sinopec Engineering completed the sale even as China Shipping (Hong Kong) Holdings Co., the largest cornerstone investor in the deal, has yet to obtain regulatory approval and may have to cancel the $100 million investment, three people with knowledge of the matter said.

The final allocation of Sinopec Engineering’s shares will be announced by May 22, according to the IPO prospectus, and trading will begin the next day. The need for China Shipping to obtain regulatory approval was noted in the sales document.

Clearance from the State-owned Assets Supervision and Administration Commission is needed for an overseas investment unrelated to China Shipping’s core business, two of the people said, asking not to be identified as the information is private. China Shipping, a unit of China Shipping (Group) Co., may still be able to make the investment if it obtains the approval, the people said.

‘Fairly Valued’

Sinopec Engineering isn’t aware of any information inconsistent with the prospectus, a Hong Kong-based external spokeswoman for the company said, when asked about China Shipping’s potential cancellation. The spokeswoman declined to comment on the final IPO price.

A Hong Kong-based spokeswoman for China Shipping declined to comment.

Sinopec Engineering’s shares were originally offered at HK$9.80 to HK$13.10 each, according to the prospectus. The offering range was narrowed to HK$10.50 to HK$11 a share, people with knowledge of the matter said yesterday.

“This company should see stable growth going forward,” said Shi Yan, an analyst at UOB-Kay Hian Ltd. in Shanghai. “You could call it a defensive pick and it seems to be fairly valued.”

Aerospace Science & Technology Finance Co. and China Export & Credit Insurance Corp. are also cornerstone investors in the offering with planned purchases of $50 million each. Only China Shipping’s investment was flagged in the prospectus as needing regulatory approval.

Cornerstone investors typically agree to hold the shares for a certain period of time, in exchange for a guaranteed allocation in the sale.

Wison Engineering Services Co., a Chinese provider of engineering and construction services for the petrochemical industry, raised $239 million from a Hong Kong IPO in December. The company has rallied about 49 percent from its offer price and trades at 11.3 times estimated 2013 profit, data compiled by Bloomberg show.

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