China's No 2 pork producer targets $2b in share sale

Carmen Chan

Yurun is counting on its earnings record to offset poor sentiment towards IPOs

Mainland pork producer China Yurun Food Group plans to raise $1.5 billion to $2 billion in a listing on Hong Kong's main board, a person familiar with the situation said yesterday.

'The company got the approval from the listing committee last Thursday and plans to kick off its roadshow next week, with the listing date set for July 28 tentatively,' said the source.

'The market sentiment is poor but Yurun has its selling points of being a China consumer concept and also [having] a high profit growth track record.'

Yurun, China's second-largest chilled pork producer and third-biggest frozen pork maker in terms of live pigs slaughtered, has 10 pork production centres and 10 processed meat production facilities.

The source said that the company planned to sell 416 million shares within a price range of 12 times to 15 times this year's earnings.

Last week, shipping firm China Cosco, fire alarm system maker GST and Sim Technology all fell on their listing debuts, reflecting the poor market for initial public offerings.

Nanjing-based Yurun expects its net profit this year to almost double to $337 million from 171.9 million yuan last year and 156.8 million yuan in 2003. Its net profit in 2002 was 74.6 million yuan.

Revenues in the past three years were 2.69 billion yuan, 1.96 billion yuan, and 1.53 billion yuan.

More than 70 per cent of Yurun's revenues come from chilled and frozen pork and almost all of its products are sold through its own sales and distribution networks across the mainland.

Of the total of 416 million shares, 90 per cent of will be reserved for institutional investors, the remaining 10 per cent being for retail investors.

Sixty-six million of the shares will be placed by holders of convertible instruments, which will be converted to shares immediately preceding the offer.

The Government of Singapore Investment Corp and CDH China Fund, an ex-shareholder of China Mengniu Dairy, both hold convertible instruments of the company, worth US$18 million and US$12 million, respectively.

Goldman Sachs is also an investor in Yurun and will own 7.09 per cent of the company after the listing. Goldman Sachs and Guotai Junan Capital are sponsors of the deal.

Zhu Yicai, the founder and chairman of the company, is Yurun's largest shareholder and will hold 56.21 per cent of the company after it lists.

The company plans to spend about $590 million on expanding its production capacity, another $207 million for working capital and $156 million on the acquisition of land and production plants held under leases with associates of controlling shareholders.

It will spend a further $52 million on research and development and $31 million on expanding its sales network.


Nanjing-based Yurun plans to sell 416 million shares

The price will be between 12 and 15 times this year's earnings

Proceeds will fund expansion and be used as working capital