WH Group to raise US$2.3b in new fixed-price IPO deal

Chinese pork giant aims to raise US$2.3 billion in reconfigured deal, three months after original listing collapsed due to high valuations

PUBLISHED : Wednesday, 23 July, 2014, 1:33am
UPDATED : Wednesday, 23 July, 2014, 8:10am

Sino-US pork producer WH Group has launched its stalled initial public offering of shares in a fixed-price deal that will raise about US$2.3 billion.

The sale comes three months after the original offer collapsed because of a combination of factors including poor market conditions, a disclosure of massive payments to two company executives and conflicting messages to investors from a record 29 investment bank bookrunners.

"This is now a reconfigured deal that is coming to the market at an agreed price," a source with knowledge of the listing plan told the South China Morning Post. "Short of a sudden major drop in the market, this deal is going ahead."

The shares will be sold for HK$6.20 each and are expected to begin trading on August 5.

The offering values the firm at roughly 11.5 times estimated earnings for this year, compared with the 15 to 20 times earnings the original transaction targeted in April, when the management eyed a sale raising as much as US$6 billion.

The listing was eventually scrapped after being scaled back to US$1.9 billion.

David Lau, JP Morgan's head of China corporate finance, said issuers were being more realistic on valuations given that overall market conditions in Hong Kong remained choppy, despite the busiest first half for new share issuance in three years.

"Unlike the 2007 bull market, a lot of cash rich investors remain on the sidelines," Lau said.

He said investors showed keen interest in sound companies which paid high dividends and offered prospects of strong growth.

Investors expected the deal to relaunch after WH updated its prospectus earlier this month with new data showing a surge in first-quarter net profit to US$407 million, more than three times the US$125 million it earned in the same period a year ago.

The sale, sponsored by BOC International and Morgan Stanley, would consist only of primary shares, said a banker with direct knowledge of the deal's terms.

That means existing shareholders including CDH Investments, New Horizon, Goldman Sachs and Temasek Holdings would not sell their stakes in the company.

The listing aims to raise funds to pay back loans incurred by the formation of WH when Shuanghui International, the mainland's top meat producer, bought out US pork supplier Smithfield Foods in a landmark US$4.7 billion deal last year.

Bankers believe WH's improved profit performance, US pork prices at record levels and steadily increasing demand for the mainland's favourite meat should be enough to counter any lingering doubts among investors who rejected the April deal as overpriced.

The offering comes to the market as the mainland is reeling from its latest food safety scandal after it emerged that Shanghai Husi Food, a unit of US-based OSI Group, had supplied expired meat to customers including McDonald's and KFC parent Yum Brands.