Honghua to seek HK$3b in March IPO

PUBLISHED : Tuesday, 22 January, 2008, 12:00am
UPDATED : Tuesday, 22 January, 2008, 12:00am

Honghua Group, a Sichuan-based manufacturer of petroleum drilling rigs, hopes to raise at least HK$3 billion through an initial public offering in early March to fund its expansion plans, a source said.

The privately-held company had extended its pre-marketing activities in order to avoid market volatility, sources said. Crimped by the credit crunch in the United States, the benchmark Hang Seng Index has slid 14.3 per cent since the beginning of the year.

'The company has been meeting investors since last week but it will only kick off the international roadshow after the Lunar New year, which is a slight delay to its planned schedule. It is really bad timing for an IPO at this point,' another source said, adding that the timetable was changing all the time and was subject to market sentiment.

'Honghua is well established and has an urgent need for fresh capital. It will wait for the best timing with a fair valuation for its first overseas share sale,' the source said.

Another listing candidate, mainland solar panel equipment maker Solargiga Energy, cut its offering by 10 per cent to draw investor interest amid weak market conditions.

Credit Suisse and Morgan Stanley are arranging the Honghua share sale.

A report from Credit Suisse put Honghua's valuation at between HK$10.2 billion and HK$15 billion, based on its forecast earnings for this year. The company is expected to report net profit growth of 50 per cent to 810 million yuan in 2008, boosted by heavy demand from domestic oil players.

Honghua and other mainland oil rig makers are benefiting from increasing capital expenditure by mainland oil giants such as Sinopec and PetroChina.

The mainland is the second-largest energy consumer in the world behind the United States, helping oilfield service providers grow rapidly over the past decade.

The National Development and Reform Commission said domestic energy uptake would rise 4 per cent a year to the equivalent of 2.7 billion tonnes of coal by 2010.

Honghua has put 101 rigs into operation and has sold 53 rigs to US customers, and 10 in Uzbekistan.

Newly listed Anton Oilfield Services Group, a mainland provider of drilling and field services, raised HK$1.2 billion through an initial public offering in Hong Kong late last year.