WH Group gains 7.42pc in Hong Kong debut though debt concerns remain

World's No1 pork producer raises US$2.3 billion in downsized second try at Hong Kong flotation

PUBLISHED : Tuesday, 05 August, 2014, 10:42am
UPDATED : Wednesday, 06 August, 2014, 2:34am

WH Group rose by as much as 10.64 per cent in Hong Kong yesterday after the world's biggest pork producer succeeded in mounting an initial public offering on its second attempt, after cutting its fundraising target and offer price.

The stock jumped to HK$6.86 at 9.32am, compared with the offer price of HK$6.20. It finished at HK$6.66 yesterday, up 7.42 per cent on the day. The benchmark Hang Seng Index added 0.2 per cent.

The company said in a statement yesterday that its Hong Kong tranche of shares was 55.22 times oversubscribed, while the international tranche, which accounts for 90 per cent of the issue size, was "moderately oversubscribed".

Analysts are worried about the company's ability to repay its debt. They also fret that the acquisition of US meat producer Smithfield Foods last year is a heavy debt burden to the company.

"WH Group may be hoping to capitalise on Smithfield's reputation, but WH also faces the cost of repaying the loan to purchase the company, combined with the volatility of today's international pork market," said James Gellert, chief executive of Rapid Ratings, a firm that specialises in rating companies.

"Though WH isn't likely to default in the next 12-18 months, especially after the capital the IPO brings in, it also doesn't necessarily have an easy road ahead of it."

The company plans to conduct debt restructuring in the future, chairman and chief executive Wan Long said at yesterday's listing ceremony. Wan said that his company had "abundant" cash flow and would have no problem repaying its debts.

The food scandal that recently embroiled Shanghai Husi Food, the meat supplier for well-known international fast food chains such as McDonald's, KFC and Pizza Hut, is causing renewed concern about food safety on the mainland.

Wan, however, said the scandal will not impact his firm and reiterated that its food has a well-established monitoring system to ensure the safety of its products.

The firm, formerly known as Shuanghui International, raised a net HK$15.28 billion as it relaunched its stalled initial public offering in a fixed-price deal last month.

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

The original IPO 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 bookrunners.