Market volatility takes toll on listings

PUBLISHED : Tuesday, 14 December, 2010, 12:00am
UPDATED : Tuesday, 14 December, 2010, 12:00am

Equity market volatility prompted Huaneng Renewables to pull its Hong Kong initial public offering, and rival China Datang Corp Renewable Power has priced its global share offering at the low end of its indicative range in Hong Kong.

Hong Kong has been the world's top market for flotations this year, but Huaneng Renewables is the third company in as many weeks to shelve a listing plan.

Bluestar Adisseo Nutrition Group, an animal nutrition company controlled by state-owned China National Chemical, decided not to proceed with its up to US$1.56 billion share offer late last month, citing poor market conditions.

Chemical firm China New Materials on Sunday cancelled its HK$681.5 million fund-raising and listing plan after founding chairman Zhang Kaijun was named as a co-defendant in a court writ of an undisclosed nature.

Huaneng Renewables said that, having consulted its sponsors and book-runners, 'it would be inadvisable to proceed with the global offering at this time'.

A subsidiary of the nation's largest power producer, China Huaneng Group, the company cited 'the change in market conditions and recent unexpected and excessive market volatility' for the ending of the offer a week after opening the order book for new shares.

China Datang Renewable is expected to price its shares at HK$2.33, the low end of the HK$2.33 to HK$3.18 indicative price range, three people familiar with the deal said.

A spokesman would not comment. The pricing means it could raise some HK$4.99 billion to fund new wind farms and repay bank loans.

Kenny Tang Sing-hing, the head of research at Redford Asset Management, said despite weak investor sentiment towards offerings, selected listing candidates in 'hot' sectors such as heavy machinery where the prices of existing shares have leapt recently were still making decent market debuts.

Analysts said that, despite the rapid growth in the mainland's wind power generating capacity and preferential government policies favouring the sector, investors are concerned that plant utilisation will be crimped by delays in expanding the power grid and the need to raise more funds to realise their aggressive expansion plans.

'Both wind power firms are desperate to raise money to fund their very aggressive capital expenditure plans,' said CLSA clean energy sector analyst Charles Yonts. 'I think they will need to raise funds again by 2013 to achieve their capacity targets.'

He said the target valuations of the duo were okay but 'do not generate excitement'.

The fact that most of China Datang Renewable's cornerstone investors were state owned, including two rival firms, and that they had subscribed to 34 per cent of the shares on offer, had made it easier for China Datang to find investors.

Cornerstone investors in Huaneng Renewables had subscribed for only 13 per cent of its offer.

At HK$2.33, China Datang Renewable's shares are valued at 14.6 times its estimated earnings next year, according to a JP Morgan research report.

Most of the company's plants are in Inner Mongolia.