Sino Grandness to List Garden Fresh Unit in Hong Kong or Taiwan

Sino Grandness Food Industry Group Ltd., a Chinese manufacturer of canned fruits and vegetables, plans to take its beverage unit public through a share sale in Hong Kong or Taiwan by October 2014.

The company, whose shares are traded in Singapore, plans to spin off its Garden Fresh Hong Kong unit, known for its loquat fruit juice in China. Sino Grandness will appoint banks for the stock sale in the next few months to raise at least S$150 million ($118.7 million), Chairman Huang Yupeng said.

The planned offer will help Sino Grandness capitalize on valuations in the overseas markets where comparable companies in Hong Kong and Taiwan trade at higher multiples relative to earnings, according to an April 8 report by Maybank Kim Eng. Garden Fresh is expected to have a market capitalization of S$750 million if it trades at a “conservative” 15 times price-earnings ratio in Hong Kong or Taiwan, Huang said.

“Consumer companies are highly valued in markets like Hong Kong and Taiwan,” Huang said in a phone interview on July 23. “In Singapore, there are small and medium-sized Chinese companies that are valued very cheaply.” .

Sino Grandness is trading at 6.8 times earnings, compared with the average of 55.6 times for comparable peers from China, according to data compiled by Bloomberg. Those in Taiwan have a multiple of 41, more than twice the Singapore average, while food and beverage stocks trade at 23.8 times in Hong Kong, according to the data.

Deadline Risk

Sino Grandness will seek approval from its shareholders and appoint underwriters for the listing over the next few months, Huang said. The company has set a target to list Garden Fresh by October 2014, or it will have to pay a premium when it redeems its convertible bonds.

Garden Fresh issued two portions of convertible bonds in 2011 and 2012, which can be converted to shares in the subsidiary when they mature.

If Sino Grandness lists its beverage business by next October, the bondholders are “likely to convert the bonds into shares of Garden Fresh, so that they can participate in the IPO,” Huang said.

Wei estimated that Sino Grandness would need to pay as much as 723 million yuan to all bondholders, based on a 25 percent effective interest rate, if the shares are not listed by the maturity date.

Sino Grandness, which has a market value of about S$450 million, has more than doubled in Singapore this year, compared with the city’s benchmark Straits Times Index’s 2.3 percent gain. The company announced its plans to list Garden Fresh on an “internationally recognized stock exchange” in a filing to the Singapore Exchange on July 1.

“We believe the catalyst has not been sufficiently priced in and buying it now would be akin to a pre-IPO investment in Garden Fresh,” said Wei Bin, a Maybank analyst, who reiterated his comments in the April report yesterday.

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