Paper products maker signs up three prominent businessmen as substantial shareholders in flotation Listing candidate Nine Dragons Paper (Holdings) has introduced Cheng Yu-tung, Robert Kuok and Lee Shau-kee as its substantial shareholders to back Hong Kong's largest initial public offering so far this year. According to the company's preliminary offering circular, the three tycoons have agreed to buy US$20 million worth of its shares through their subsidiaries - Ample Glory, a member of Mr Kuok's group; Chow Tai Fook Nominee, a company wholly owned by Mr Cheng and his family; and Bestfull, a private company of which Mr Lee is an indirect substantial shareholder. The mainland's largest containerboard products maker aimed to float its shares early next month, sources said. The company plans to raise up to $3.4 billion by selling one billion shares at an indicative price range of $2.85 to $3.40 each, translating into 11 to 13 times its combined profit attributable to equity holders for the financial year to June, projected to be less than 1.05 billion yuan. The circular said Nine Dragons earned 242.1 million yuan for the three months to September last year, up from 52.8 million yuan the year before. For the past financial year, its net profit increased 7.92 per cent from the previous year to 303.7 million yuan. The company planned to use the net proceeds from the float to fund capital expenditure and repay part of its debt. According to the circular, the firm plans to use 35 per cent of the proceeds to repay a portion of the short-term bank borrowings with interest rates ranging from 4.65 per cent to 5.76 per cent per annum, while a further 55 per cent will be used to fund construction of three paper machines, which will be brought online by the next financial year. In September last year, Nine Dragons' borrowings amounted to about six billion yuan, of which 930.9 million yuan represented bank borrowings due within a year, while the company's gearing ratio - reflecting total borrowings as a percentage of total assets - stood at 51 per cent. Despite the relatively high gearing ratio, investors were still bullish on the company's outlook. 'The industry is considered a capital-intensive one that requires a lot of capital investment,' said a fund manager who attended the investor presentation held yesterday. He noted that while the gearing ratio was high, the entry barrier was also high and this should lessen market concerns over the firm's high indebtedness. Nine Dragons said in the presentation that it aimed to keep its gearing ratio at 45 to 50 per cent in the long term. The offering circular said an increase of 50 basis points in the paper products maker's effective interest rate would raise its interest rate payable under the borrowings by approximately 30 million yuan annually.