Windfall paper profit for key Winsway backers

PUBLISHED : Saturday, 02 October, 2010, 12:00am
UPDATED : Saturday, 02 October, 2010, 12:00am

Four cornerstone investors in coal transporter Winsway Coking Coal will share a paper gain of HK$1.75 billion when it lists on the Hong Kong stock exchange this month - a mere five months after they made their investments.

Hopu Investment Management, China Minmetals Corp, Silver Grant and Itochu made a combined investment of US$120 million in the company, whose principal business is carrying coal from Mongolia to China. The value of their investment will appreciate by 187 per cent when Winsway starts trading on October 11.

Winsway priced its offering of 990 million shares at HK$3.70, according to a terms sheet sent to investors. That is slightly lower than the HK$3.875 mid-point of the shares' indicative price range of HK$3.25 to HK$4.50.

The pricing means Winsway will raise HK$3.66 billion, which it will use to fund an expansion of its facilities along the Mongolia-China border to process, store and load coal.

Market watchers said it was no surprise Winsway had not been able to price its shares at the higher end of the indicative price range.

'Winsway is a logistics company, not a miner, but its pricing is quite a bit higher than listed peer China Qinfa Group,' said Kenny Tang Sing-hing, head of research at Redford Asset Management.

Miners generally attract higher valuations than logistics firms because the mining industry's entry barriers are considered higher.

Solar-panel maker Trony Solar on Thursday priced its shares at HK$4.50, the top end of their indicative range of HK$3.10 to HK$4.50, with the retail investor tranche offering almost 500 times subscribed, a person familiar with the deal said.

Winsway's pricing is equivalent to 15.9 times its own estimate of earnings per share for this year. This compares with 8.9 times for China Qinfa, based on profits estimates of two analysts polled by Thomson Reuters.

Tang noted Winsway's business would probably be hurt by its major customer Mongolian Mining's plan to build its own coal washing and processing facilities, which will come on stream this year and next year. They will put Mongolian Mining in a position to be self-sufficient.

Winsway enlisted the cornerstone investors to sell its shares at a relatively high valuation. The four are all well-known financial or mining companies, and their investment helped draw interest from the wider investment community. They agreed not to sell their shares for at least six months.

In April it sold US$60 million worth of preference shares to Hopu, US$25 million of convertible bonds to China Minmetals, US$25 million of convertible bonds to Silver Grant and US$10 million of convertible bonds to Itochu.

Hopu is a US$2.5 billion private-equity fund house co-founded by well-connected banker Fang Fenglei, one of the mainland's leading dealmakers. China Minmetals is the nation's largest base-metals trader. Silver Grant is an investment holding company active in the resources and energy fields. Itochu is one of Japan's largest diversified trading houses.


The four firms invested US$120 million between them in Winsway

When Winsway begins trading the key investors will see their investment appreciate: 187%