Haixing raises H-share offer price

BANKING on a stable stock market, China's Shanghai Haixing Shipping Co plans to launch a strong comeback with a higher issue price, following the postponement of its H-share offering three months ago.

The mainland shipping concern will begin a two-week international promotional tour tomorrow, with the first stop in Hong Kong, expecting to launch an offering early next month.

'We have more confidence this time because the market has stabilised and we have heard [there is] quite good demand from our clients,' said a source close to the initial public offering, which was shelved in July because of a pricing disagreement between the underwriters and the company.

At that time, underwriters wanted a lower multiple below 10 times to cushion from market turmoil, but Haixing refused to slash the issue price.

Now, Haixing plans to price its shares between 10 and 12 times prospective 1994 earnings, putting the issue price between $1.40 and $1.70 per share.

With a proposed issue of 1.08 billion shares, accounting for 43.5 per cent of the company's enlarged share capital, it will raise up to $1.84 billion.

Treated as a new application, Haixing has prepared an audited account for the first six months of the year, which shows the company posting after-tax profits of 185.34 million yuan (about HK$167.73 million) on a turnover of 1.32 billion yuan.

With the improvement in first-half performance, the source said Haixing had revised upward its full-year forecasts from the previous projection of 350 million yuan, thanks to a reduction in operating costs and saving in tax expenses.

One analyst, whose company will act as an underwriter, estimated Haixing would chalk up profit of 375 million yuan this year, up almost 43 per cent from 262.56 million yuan last year.

'The pricing is not demanding - it's quite reasonable,' said SBCI Finance Asia associate director Lawrence Ang.

'But if the company wants to guarantee a good response, [a multiple of] 10 times will be better,' he said, noting that a 20 per cent discount to the average market multiple would be appropriate.

He estimated that H-share counters were trading on the exchange at an average of about 14 times.

'Haixing has sound fundamentals,' he said. 'Analysts generally have a good impression of the company.' SBCI analyst Anna Ho said Haixing had guaranteed demand because 80 per cent of its business was generated from the shipping of coal and crude oil - the raw materials for power plants.

Also, the company had further room to raise freight charges because more than 60 per cent of its sales were priced under the state plan.

'It has leeway to increase the price in the future when the government liberalises price controls,' Ms Ho said.

But she said the major uncertainty was whether the company would be affected by China's austerity programme, which had seen shipping companies suffer from the problem of overdue freight payment.

It is understood that Haixing reported debtors owing 432.82 million yuan for the first half of the year, a significant rise compared with last year's 335.25 million yuan, indicating the problems of triangular debt prevail.

Meanwhile, analysts have expressed concern over the company's heavy interest burden. Last year, it incurred 161.85 million yuan in interest payments, paying 140 million yuan in the first half.