WH Group, the world’s biggest pork producer, is set to shrink its initial public offering in Hong Kong after it delayed pricing of the proposed deal on Tuesday in the latest blow to the local market for new listings.
The Chinese pork company had been planning to raise up to $6.2bn from its listing, which would have been the biggest in Hong Kong since 2010. It was due to price its shares on Tuesday during New York hours, before its trading debut on April 30.
But in a further sign of weak appetite for Chinese deals, the company will now push back pricing while it rethinks the amount of money it is looking to raise, according to two people with knowledge of the process. WH Group would still like to price shares within its indicated range of HK$8.00-HK$11.25, but is discussing various options with bankers and investors, including a much smaller deal or a lower valuation. One scenario would involve raising $1.3bn-$1.9bn by selling 10 per cent of the company, and a week-long delay to both pricing and trading.
Outside shareholders – including Goldman Sachs, CDH and Temasek – are no longer expected to sell down their holdings as previously outlined in the listing prospectus.
One person familiar with the proposed deal said that investors were positive about the business, but had expressed concerns about the valuation sought by WH Group. Sentiment had been further hit by rising pork prices – due to a deadly virus in the US – and by concerns about the Chinese economy.
As a privately owned company, WH Group is unable to rely on “friends and family” to complete a deal – a common feature in Hong Kong where Chinese state-owned enterprises sell shares to other SOEs. The company also drew fire after it made a loss last year thanks to huge share payouts worth almost $600m to two executives.
WH Group, formerly called Shuanghui International, was hoping to raise cash to pay back debt taken on during last year’s $8bn takeover of US pork producer Smithfield Foods. The Chinese group borrowed $4bn to finance the deal and took on $3bn of outstanding debts at Virginia-based Smithfield.
The delay to the WH Group IPO, first reported by IFR, is yet another blow to Hong Kong’s new listings market. The city has already missed out on two large deals this year: Alibaba chose to pursue a listing in the US, and AS Watson opted to sell a stake to Temasek rather than brave public markets.
A cut to the deal size will further eat into the fees earned by those running the deal. WH Group hired a record 29 bookrunners to manage its listing.
WH Group is not the only Chinese company to run into trouble during its IPO this year. Last week Weibo, a microblog platform spun out from Sina, chose to cut the size of its listing on Nasdaq in order to avoid pushing its price below the proposed range. However, the share price then soared on the first day of trading.
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