WH Group reboots HK IPO after cutting valuation

23-Jul-2014 Intellasia | FT | 6:00 AM Print This Post

WH Group, the world’s largest pork producer, has slashed its targeted valuation to $11.7bn as it launches its second bid to list shares on the Hong Kong stock exchange.

The Sino-US company will now sell shares at HK$6.20 each, far below its previous target of at least HK$8, according to two people familiar with the process.

The new pricing gives the company a valuation of 11.5 times 2014 earnings, down from a minimum of 15 times sought with its previous initial public offering plan earlier in the year.

Assuming that the “greenshoe option” of selling extra shares is exercised, WH Group will raise $2.3bn from the rebooted Hong Kong float valuing the company at $11.7bn.

WH Group first tried to list in April, in a deal that at one point aimed to raise more than $6bn for the company and its private equity backers, implying a market capitalisation of more than $20bn.

It was forced to pull the IPO- in spite of a late, drastic cut in the total deal size to less than $2bn – after investors balked at the high valuation sought for a company less than six months old, scuppering WH’s refinancing plans.

WH Group is the product of the highly leveraged $7bn takeover of Smithfield Foods of the US by China’s Shuanghui International, an acquisition that only received regulatory approval in September last year.

In the months since, the share price of Henan Shuanghui- the Chinese part of the global business- has fallen more than 15 per cent.

The company revived its Hong Kong listing plan earlier this month, and filed an updated prospectus showing a rise in profits during the first quarter of the year.

WH Group came under fire for hiring a record 29 banks the first time round, seven of them joint sponsors. The new deal is being managed by just two- Morgan Stanley and Bank of China International.

The IPO roadshow will kick off on Wednesday, with the Hong Kong public offering- the mandatory retail portion of the sale- running until next Tuesday.

Under Hong Kong listing rules, a minimum of 5 per cent of large IPOs must go to retail investors. Trading is due to begin on August 5.

The new deal is expected to prove smoother sailing for WH Group, with a list of about 30 investors- including sovereign wealth funds and long-only funds- already lined up to buy shares, according to a person familiar with the matter.

The cash raised will be used to pay back some of the roughly $4bn in debt taken on to finance the Smithfield takeover.

If completed as planned, WH Group will be the largest listing in Hong Kong this year.

WH Group declined to comment.

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Category: Hong Kong

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