BBMG Corp, a leading building materials maker in China, on Thursday raised $768 million in a Hong Kong IPO at the top end of an indicated range, sources said, becoming one of the largest such deals this year and setting a positive tone for other big listings to follow.
State-owned BBMG is selling 933 million shares that priced at HK$6.38 per share amid substantial demand, sources involved with the process said. The indicated range was between HK$5.18 and HK$6.38 per share. The sources weren't authorized to speak publicly about the deal yet.
The heavy demand for shares underscores several themes playing out in Asia right now, among them a surge in equity offerings that have been unleashed since the stock markets here took off earlier this year.
BBMG's top-end pricing is a good sign for the block of IPOs preparing to hit the Hong Kong market, several of which are multi-billion offerings.
By raising $768 million, BBMG ranks as one of the largest IPOs in Hong Kong so far this year, behind the $1.3 billion raised by aluminum products maker China Zhongwang Holdings in April. While it's a milestone for 2009, IPO volumes and sizes are still well below levels reached 18 months ago.
Another key factor behind BBMG's strong IPO showing is its connection to China's stimulus package. Both the bankers underwriting the offering and the analysts covering it were quick to tie the building material company's story to China's support of the industry.
Yet another theme at play is that Hong Kong residents, famously aggressive when it comes to buying into IPO offers, see cheap prices after nearly a year of little or no activity.
The market sentiment is very optimistic now and new offerings so far have cheaper valuations. That's why investors are rushing for better bargains, said Li Kwok-suen, a fund manager at Phillip Capital Management.
The IPO has triggered a claw back sources say, meaning the retail portion of the demand was more than 100 times over-subscribed. That means an additional portion of the IPO was opened to the retail audience and scaled back for institutional investors.
Beijing-based BBMG is one of the largest building materials manufacturers in China, a leading property developer and a large-scale property investment and management company, according to its website.
News of BBMG's IPO plans first surfaced last October. Most fourth-quarter IPOs were pulled or postponed as the stock markets fell broadly toward the end of 2008.
Phillip Securities Group said in an earlier research note that BBMG is supported by government policies.
In the 4-trillion (yuan) stimulus package, almost 50 percent of the budget has been related to BBMG's core business, which includes affordable housing projects (10 percent) and transportation, water and electricity infrastructure (37.5 percent).
Based on BBMG's financial data and its IPO offering range, Phillip Securities estimated a multiple of 8.8 to 10.9 times 2010 earnings. The note said that valuation is cheap compared to Anhui Conch's expected multiple of 16.8 times and CNBM's expected multiple of 11.4 times.
We expect the upside potential during a 12-month horizon can reach 30-60 percent, the note said.
UBS AG, Macquarie Group and JPMorgan are handling the IPO.
(Additional reporting by Donny Kwok; Editing by Jacqueline Wong, Chris Lewis and Muralikumar Anantharaman)