Honghua to revive HK$3b share sale

PUBLISHED : Monday, 18 February, 2008, 12:00am
UPDATED : Monday, 18 February, 2008, 12:00am

Rig maker's move may trigger relaunch of postponed deals

Honghua Group, the world's second-largest producer of onshore oil and gas drilling rigs and the mainland's largest by revenue, will relaunch its Hong Kong initial public offering, raising hopes that other postponed deals will follow soon amid the improved market sentiment.

The Sichuan-based company will stage a marketing roadshow for its more than HK$3 billion global share offer tomorrow, according to market sources. It will be the first company to tap the market through an initial public offering after the Lunar New Year break.

The offer will herald a series of comebacks by listing candidates that cancelled or delayed their offers in the past few weeks, after worries about a United States recession and a slowdown in the mainland economy led to a sharp correction in the stock market, market watchers said.

The Hang Seng Index has rebounded 11 per cent from this year's low of 21,757.63 reached on January 22, although it has still fallen 13.17 per cent in the year to date.

'I think the shelved offerings will certainly come back, as some investors are taking the view that the latest round of market correction is close to an end given the mainland property and banking sectors, which were among the hardest-hit, have stabilised,' said Kenny Tang Sing-hing, an associate director at Tung Tai Securities.

About 10 offerings have been postponed this year, including those from Honghua, SJM Holdings, China Railway Construction Group and Evergrande Real Estate Group. Together, they could raise more than HK$50 billion.

China Railway Construction is expected to begin its roadshow on February 25.

Department store operator Maoye International Holdings was also expected to soon relaunch its offering, after sponsor Goldman Sachs added UBS and HSBC as underwriters, sources said.

Honghua plans to issue 833.36 million new shares, with most of the proceeds to fund the construction of an offshore drilling rig manufacturing base on the east coast.

The company also wants to finance the expansion of production capacity to 150 rigs this year from about 90 rigs delivered last year, as well as acquisitions and the establishment of joint ventures and alliances with international partners.

The company has budgeted 2.25 billion yuan in capital expenditure for this year and next year for the capacity upgrade and the new plant.

Its current production facilities are in Sichuan and in Houston in the United States.

The 10-year-old company has forecast net profit for last year of at least 538.3 million yuan, up 30.4 per cent from 2006.

Although Honghua serves only onshore customers such as PetroChina and China Petroleum & Chemical (Sinopec), it wants to break into the offshore equipment market and sold a stake to potential customer China National Offshore Oil Corp, parent of listed CNOOC, for US$23 million in November 2006.

China National will have a 5.2 per cent stake after Honghua is listed.

Honghua also formed an alliance in early 2005 with key customer Nabors Industries, a US-listed international oil and gas driller.

Other Honghua financial investors include Carlyle Funds and Vincera Group, whose stakes will be diluted to 5 per cent and 0.8 per cent, respectively, on listing.

Credit Suisse and Morgan Stanley are the deal's joint sponsors.