CNR faces hard sell in Hong Kong after offering gets all-clear
China CNR, the nation's second-biggest maker of trains, is planning to launch its US$1.5 billion initial public offering in Hong Kong in the second week of May after receiving approval from the Hong Kong stock exchange yesterday.
CNR's deal comes at a time when sentiment in the city's stock market remains tepid and investors are apathetic over new share offerings given the slowing mainland economy.
The state-owned firm is looking to go on a global roadshow as soon as May 7 after the Labour Day public holiday, according to two people familiar with the deal. They said the firm was scheduled to list in late May, depending on the feedback from investors and market conditions.
Sizeable orders are needed by CNR from cornerstone investors who would pledge not to sell their stakes for at least six months, after WH Group - formerly known as Shuanghui International - was forced to substantially cut its offering size due to poor market conditions.
CNR's net current liabilities soared to 3.3 billion yuan (HK$4.1 billion) last year, compared with 972.6 million yuan a year earlier, owing to a spike in trade payables and interest-bearing debts. Its cash and cash equivalents slid to 7.1 billion yuan from 8.4 billion yuan for the same period, according to its preliminary listing document.
The firm said its indebtedness had not changed since late February after it issued a series of short-term and medium-term bonds to repay bank loans in the first three months, including a combined four billion yuan of bonds in February and March.
China International Capital Corp, Macquarie and UBS are the lead managers for the CNR deal.
Shares in Shanghai-traded CNR have dropped 7.7 per cent this year. They finished down 0.7 per cent at 4.54 yuan yesterday, compared with a 3 per cent decline in the Shanghai Composite Index.
The firm plans to increase its revenue to 140 billion yuan by 2016, vice-president Yu Weiping said on CNR's website. CNR and CSR, a state-owned enterprise listed in Hong Kong and Shanghai, dominate the mainland train manufacturing sector.
WH, even with a record 29 bookrunners and support from private equity firms, did not follow the usual practice of securing a group of cornerstone investors for its original plan to raise US$5.3 billion. It now aims to raise up to US$1.9 billion.
"Liquidity in Hong Kong's stock market remains an issue to institutional investors, even though valuations among a number of blue-chip stocks look favourable," a fund manager said. "The appeal for new share offerings would depend a lot on the earnings prospects."