Magang to keep HK flotation 'simple'

MAANSHAN Iron and Steel, one of the nine mainland companies to list in Hong Kong, will launch a private placement for international investors and a public offer for local investors next month.

The move follows the controversy over Shanghai Petrochemical's complicated offering structure earlier this year.

''In order to simplify the issue, Maanshan Iron and Steel plans to have about 75 per cent of its new issue offered outside Hong Kong through a private placement,'' said an underwriter who has been invited to join the multi-billion-dollar issue as a sub-underwriter.

Details of the listing have yet to be finalised, but Wardley Corporate Finance, the sponsor and leading underwriter of the issue, has worked out the guidelines.

The steel giant will float 1.7 billion shares in Hong Kong. The issue is expected to be priced between $1.60 and $2.25 a share. The flotation size will be between $2.72 billion and $3.83 billion, which will be used to finance a $3.5-billion expansion plan.

It is understood Hong Kong investors will be offered 25 per cent of the issue, with 25 per cent in the US, 10 per cent in Japan, 25 per cent in Europe and Asia, and 15 per cent for individual investors.

The shares offered in the US will be traded in American Depository Receipts (ADRs).

The price-earnings multiple is estimated to range between 11.5 times and 13.5 times. Subscription is expected to start on October 13 and trading may begin on November 2.

Hang Yongyi, the company's chairman, and Wardley Corporate Finance declined to give further details of the listing.

Maanshan Iron and Steel is the fifth mainland company to list in Hong Kong. A sub-underwriter said the company's offer could be as large as Shanghai Petrochemical's $2.9 billion, launched in the territory in July.

The Shanghai Petrochemical issue met with a cool response both in Hong Kong and abroad because of the complicated structure of its offer.

The oil giant offered half the issue to Hong Kong investors, while 25 per cent was sold in the form of ADRs to the public in New York. The remainder was privately sold to international investors.

Under the listing system in the US, an offer-price range has to be set out during the subscription. Shanghai Petrochemical priced its whole issue between $1.55 and $1.74 a share when launching the offer.

Founded in 1958, Magang Holdings is the eighth largest steelmaker in China in terms of crude oil capacity and the 25th largest state-owned enterprise in terms of turnover.

The holding company, owned by the Metallurgical Industry Ministry, formally established a shareholding company, Maanshan Iron and Steel Limited Company (Magang Limited) last week. The new division will be the one which lists. It will be responsible for steel and iron production.

Meanwhile, the shareholding company plans to list on Shanghai's A-share market this year. The lead underwriter for the mainland listing is Guotai Securities.

After the flotations in Hong Kong and China, Magang Holdings will own 60 per cent of Magang Limited, Hong Kong and international investors will have 30 per cent, and mainland individuals will have the remainder.

With 30-per cent foreign ownership, Magang Limited will qualify as a foreign joint-venture company in China and enjoy tax benefits, with profits tax reduced from the 33 per cent for state-owned enterprises to 15 per cent.

The shareholding company will employ 51,200 staff. It will have three steel smelting plants, three iron smelting plants and six steel rolling plants.

Magang produces section steel, wire rods, steel plates and wheels. Annual output of wheels stands at 170,000 tonnes, and up to 210,000 tonnes of first-grade wheels will be manufactured annually from the end of this year, when improvements at the mill have been completed.

Last year, the company recorded a turnover of $3.679 billion and a profit of $407.6 million.

To increase production capacity and upgrade product quality, the steel giant has made a series of new investments. It is building a 2,500-cubic-metre blast furnace at a cost of 2.9 billion yuan (HK$3.9 billion).

It is also pushing ahead with a series of renovation and expansion plans, set to cost between three billion and four billion yuan.

Most of the company's products are for construction use, and the market is worried that the recent austerity programme launched by executive vice premier Zhu Rongji to curb the speculative property market will affect the company's performance.

But the sub-underwriter explained: ''Seventy-per cent of the company's products were sold to Shanghai, Zhejiang, Jiangsu and Anhui, where most of the property development were for end-users, rather than speculators. So the austerity programme will not have a serious effect on the company.'' The company launched an international roadshow last week.

A team was sent to London last Tuesday, while another left for the US yesterday. It is believed a third group to visit both Europe and the US will leave this week.

Roadshows are also planned for Hong Kong, Japan and Singapore.

Fact file Maanshan Iron and Steel Shareholding Co Background: Maanshan Iron and Steel Shareholding Co, a subsidiary of the Metallurgical Industry Ministry, was set up in 1958 in Nanjing. It is the eighth largest steel plant in China, producing 2.4 million tonnes of crude steel each year. Last week, it established a shareholding company, which is expected to be listed in Hong Kong in November. The shareholding company will focus on iron and steel operation. It is believed the flotation size ranges from $2.72 billion to $3.825 billion.

Total sales: $2.284 billion (1990); $2.66 billion (1991); $3.679 billion (1992) and $2.582 billion (January to May, 1993) Net profits: $97.7 million (1990); $143.7 million (1991); $407.6 million (1992) and $979.9 million (January to May in 1993).

Annual production capacity: 1992 - 2.3 million tonnes pig iron, 2.4 million tonnes crude steel, 1.9 million tonnes steel products. 1996 (planned) - four million tonnes pig iron; 3.2 million tonnes crude steel; 2.8 million tonnes steel products.

Contact: Hang Yongyi, chairman. Address: No 8, Hong Qi Zhong Road, Maanshan City, Anhui. Tel: (555) 476786; fax: (555) 324350.