Eternal sunshine of the spotless mine
A proposed US$500 million to US$700 million initial public offering by energy company Sunshine Oilsands is bearing down on Hong Kong investors, which would make it the largest IPO globally so far in 2012. The roadshow is set to start today and pricing is slated for February 14.
The company is based in Calgary, Canada. So what is it doing tapping Hong Kong investors for funds?
Cleary there is a need in China for the abundant oil reserves and resources that lay in its vast pits. Canada is said to have the world's third-largest proven oil reserves, after Saudi Arabia and Venezuela, largely thanks to this viscous, bituminous grit. Sunshine Oilsands controls more than 465,000 hectares of oil sands leases, encompassing an estimated 2.2 billion barrels in resources.
Meanwhile, US President Barack Obama recently blocked a pipeline from Canada to the US on environmental concerns. The move immediately sent the Canadians looking to re-route the pipeline to the west coast, to ship the oil to China.
So there is a China angle, and the quality of Sunshine Oilsands' operations is not in question. The company has no debt. It also recently raised US$227 million in private equity money, which indicates that smart, professional investors see value in this entity.
The IPO would value the business at up to US$2.4 billion.
But while Chinese money has been aggressively pursuing investments in Canada's energy sector, a listing in Hong Kong of what is, at this juncture, a business focused on North American assets is perhaps at odds with the mandates of the large funds that typically get involved in local IPOs. Such funds are generally interested in firms whose businesses are active in Asia, or otherwise have a strong connection with the region.
True, Sunshine Oilsands now has a number of Chinese names on its register and its executive co-chairman, Songning Shen, formerly worked at Bohai Corp, a subsidiary of CNOOC. The company has also states that 'it is committed to developing a long-term presence in Asia' and that 'it positions itself to take advantage of Asian industrial and financial expertise'.
But more than 90 per cent of the deal's net proceeds will be assigned to the development of oil sands and projects in Canada.
China will no doubt provide Sunshine Oilsands with a significant market as oil production comes on stream. But is that a sufficiently intriguing local angle to stir the enthusiasm of Hong Kong investors?
Husky Energy, which is 35 per cent owned by Hutchison Whampoa and listed in Toronto, is another Canadian energy company that has for a while been contemplating a listing in Hong Kong - but this has yet to materialise.
Other listings of Canadian-incorporated businesses in the city haven't exactly been resounding successes. SouthGobi Resources - which is active in Mongolia and China, and also listed in Toronto - has seen its share price fall more than 56 per cent since its US$439 million IPO in Hong Kong in January 2010.
China Gold International Resources, which mines gold on the mainland, has plummeted almost 46 per cent since its November 2010, US$309 million listing in Hong Kong. It is also listed in Toronto.
Both stocks are trading on thin volumes, underlining tepid local interest in trading the securities.
And, while the linkage is indirect and completely tenuous, the sorry saga of Toronto-listed Sino-Forest may have eroded the bond between equity investors, Chinese capital and IPO stories with a Canadian flavour.
Many of these firms come from the mining and resources sector, which is cyclical, prone to booms and busts, and generally less familiar to Hong Kong investors.
Sunshine Oilsands has a good story to tell, but it, too, will have to win this perception battle.
Philippe Espinasse was an investment banker in the US, Europe and Asia for more than 19 years and now writes and works as an independent consultant in Hong Kong. He is the author of IPO: A Global Guide