Tiangong IPO spells windfall for AIG, funds

PUBLISHED : Friday, 13 July, 2007, 12:00am
UPDATED : Friday, 13 July, 2007, 12:00am

Stock sale may net HK$112.5m

American International Group (AIG) and two related funds could reap a profit of up to HK$112.5 million by disposing of shares in the initial public offering of Tiangong International, the mainland's largest high-speed steel producer.

The insurance and financial giant, AIG Asian Opportunity Fund and AIG Global Emerging Markets Fund will sell one-third of the 90 million shares to be exchanged from the US$30 million exchangeable bonds they bought last August.

The bonds can be swapped into Tiangong shares at HK$2.61 each, a 51.7 per cent to 59 per cent discount on the HK$5.40 to HK$6.36 indicative range the company is marketing for its share sale.

High-speed steel is a relatively expensive alloy made for smaller, niche markets such as in the production of parts for vehicles, machinery and aircraft.

Tiangong International, which is also the mainland's largest maker of high-speed steel cutting tools, explained in its listing prospectus that the discount reflected the illiquidity of AIG's shares and regulatory hurdles of the initial public offering.

AIG and the funds will retain a 15 per cent stake in Tiangong after completion of the offer, down from 30 per cent.

All three parties have pledged not to sell their remaining 15 per cent stake within six months of Tiangong's listing.

Jiangsu province-based Tiangong aims to raise up to HK$636 million by selling 100 million new shares, of which 90 per cent will be offered to institutional investors and the rest to retail investors.

The offer will open on July 25.

The company has forecast that net profit will surge at least 66 per cent to 162 million yuan this year from 96.60 million yuan last year.

First-quarter net profit jumped threefold to 44.79 million yuan from 14.81 million yuan in the same period last year, thanks partly to the full corporate tax exemption of its cutting tools subsidiary.

The exemption would expire in 2009 but the company would still enjoy a 50 per cent tax rate reduction until 2011, said chief financial officer Shi Guorui.

Tiangong plans to distribute at least 30 per cent of its net profit as dividends.

Chairman Zhu Xiaokun said the company aimed to become the world's largest high-speed steel producer but declined to give its current ranking, only saying that it was 'certainly in the forefront'.

'The advantage of mainland producers is that they are blessed by China's vast reserve of rare metals - such as tungsten, molybdenum and vanadium that are used to make high-speed steel - which will help them achieve even bigger development overseas,' he added.

Exports accounted for 13.2 per cent of Tiangong's high-speed steel sales and 81.5 per cent of its cutting tools sales last year.

The mainland's high-speed steel output has grown 17.2 per cent in the past five years, while exports jumped 2.5 times last year to 3.1 million tonnes.