Hebei Construction US$297m IPO is first in Hong Kong to target China’s massive Xiongan project

The company is pitching its ‘advantageous position’ to benefit from Beijing’s plan to develop the rural Xiongan area into a mega economic zone

PUBLISHED : Monday, 04 December, 2017, 9:28pm
UPDATED : Tuesday, 05 December, 2017, 3:45pm

A share offering this week of up to HK$2.32 billion (US$297 million) by China’s Hebei Construction will be the first listing in Hong Kong of a company linked to Beijing’s ambitious Xiongan special economic zone project.

Xiongan New Area, established in April and just a couple of hours south of Beijing, is part of China’s efforts to transfer some functions out of the increasingly crowded capital and find new growth drivers led by innovation and technology.

Some analysts have put the possible investment in developing infrastructure in the area, which is currently mostly farmland, at up to US$583 billion over the next 20 years, although the government has yet to unveil its blueprint for the zone.

“For sure we can have a finger in the pie,” said Shang Jinfeng, president and executive director of Hebei Construction, at a media briefing on the listing in Hong Kong on Monday.

“We have geographical advantages, advantages in transporting equipment and ‘green infrastructure’ experience, which is in line with the state’s goal to build Xiongan into a green, liveable and modern urban area,” he said.

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Hebei Construction, China’s second-largest privately owned construction contractor, plans to issue 433.334 million shares in the Hong Kong IPO, with an expected price range of HK$4.46 to HK$5.36 per share. The stock is set to start trading on Hong Kong’s main board on December 15.

In the listing prospectus, Hebei cited an estimate by research firm Frost & Sullivan of 400 billion yuan (US$60.4 billion) in fixed-asset investment in the Xiongan project in the next five years.

Shang said the company had already set up three joint ventures with local county governments in Rongcheng and Xiong separately. The planned Xiongan area will combine the three counties of Xiong, Rongcheng and Anxin.

“Once the central government rolls out the development, our joint ventures will give us the upper hand,” Shang said.

“We expect massive infrastructure construction projects in the initial development of the new Xiongan city, followed by building projects in the later stage.”

He added that the company would focus on both infrastructure and building projects and try to gain a greater market share in the development of Xiongan.

The company plans to use 40 per cent of the IPO proceeds to complete construction projects it has contracted for but has not finished, 40 per cent to fund commitments under existing and future public-private-partnership (PPP) projects and 10 per cent to repay outstanding bank loans, with the rest for general corporate purposes.

One cornerstone investor, Zhongji Investment, has agreed to buy 300 million yuan’s worth of shares in the IPO.

In 2016, Hebei Construction recorded a 89 per cent jump in net profit to 768 million yuan, while for the first half of 2017, net profit increased 77 per cent year on year to 503 million yuan. The company’s debt to capital ratio stood at 152.7 per cent at the end of June, and it had a total of 3.77 billion yuan of interest-bearing loans.

“As a construction contractor in the northern area of China, our cash flow conditions have seasonal fluctuations. Payment collections usually speed up in the second half, particularly near the year end,” said Zhao Wensheng, chief accountant and director of finance for Hebei Construction.

He expected the Hong Kong listing to provide a further boost to the company’s cash flow.

Shares for the public will go on sale between Tuesday and Friday and the stock will trade under the ticker symbol 1727.