IPOs: CR Pharma, Orient Securities Eye $1 Bln IPOs, Wanda Hits Resistance

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Bottom line: Orient Securities IPO shares will debut flat due to weakness in China’s stock markets, CR Pharma will price stronger on good prospects for drug makers, and Wanda Commercial will have to raise its privatization buyout price.

CR Pharma files for HK IPO

After a quiet first half of the year, big IPOs for Chinese companies are suddenly coming to life in Hong Kong, though the outlook isn’t particularly strong. The latest headlines have China Resources Pharmaceutical filing for a $1 billion offering that was first mooted back in February, while the second has Oriental Securities pricing its own $1 billion offering near the bottom of its range. Meantime, a privatization bid for the Hong Kong-listed Wanda Commercial Properties (HKEx: 3699) has hit a stumbling block, with word that a major investor has objected that the buyout price is too low.

All 3 deals represent in one way or another how tepid investor appetite has become for new IPOs this year, amid signs of rapid slowing in China’s economy. That slowdown has hit the real estate market and related stocks the hardest, which is driving the Wanda privatization. Financial markets have also become quite volatile, which is hurting Orient Securities prospects. The drug industry is one of the few which hasn’t taken a major hit, which perhaps bodes a little better for CR Pharma’s IPO.

Let’s begin with CR Pharma, which has just filed for the offering plan that was first disclosed back in February, with a target of raising up to $1 billion. (English article; Chinese article) There’s not much of interest in the latest reports, which include names of the investment bankers on the deal and some financials for an offering that could be this year’s largest in China’s fast-growing drug and medical sector.

Word of CR Pharma’s plans first appeared in February, when media said it was selecting investment banks for an offering to raise up to $1 billion. So the fact that it’s sticking by the $1 billion target is encouraging, though we’ll have to see how the shares price. I suspect they should price in the middle of their range or higher, following a similar path as the recently listed aircraft leasing firm BOC Aviation (HKEx: 2588), due to strong growth prospects in China’s drug sector.

Lackluster Demand

The same wasn’t true for Orient Securities, which has priced its own IPO at HK$8.15 ($1.05), or close to the bottom of its previously announced range of HK$7.85 to HK$9.35. (English article; Chinese article) There’s also not much more to say about this deal, except perhaps to applaud Orient for being brave enough to go ahead with the offering in the current climate.

Orient made a much more successful IPO in Shanghai last year, raising $1.6 billion amid a rush of offerings by Chinese brokerages at that time. (previous post) Back then securities brokers were in high demand among Chinese investors, since the nation’s stock markets were in the midst of a rally that saw them more than double in the space of a year.

Since then the markets have cooled considerably, similarly cooling demand for brokerage stocks. Accordingly, Orient’s stock is likely to post a flat trading debut and could even fall up to 5 percent.

Finally there’s Wanda, one of China’s premier property developers whose shares haven’t done too well in Hong Kong since their debut a year and a half ago. Wanda’s boss Wang Jianlin offered to buy back the company’s shares for HK$52.80, representing a premium of 45 percent to levels before word of the privatization plan first leaked out in March.

But now at least one major institutional investor, Dutch fund manager APG Groep NV, is saying the offer is too low. (English article; Chinese article) APG holds about 5 percent of Wanda’s Hong Kong-listed shares, meaning its consent is important since the buyout will fail if more than 10 percent of shareholders vote against it. This isn’t the first time a Chinese company has come under fire for offering a lowball privatization price, and I suspect Wanda may have to raise its offer for this plan to succeed.

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