IPOs: Wanda Takes On Disney, Haitong Floats Shares
Bottom line: Haitong’s new share offer is capitalizing on strong sentiment toward brokerages and could be used to fund an overseas purchase, while Wanda’s theme park foray looks too aggressive and is likely to run into problems.
Big fund-raising is in the headlines today as we head into the end of 2014, with real estate giant Dalian Wanda continuing to talk up its upcoming blockbuster IPO as Haitong Securities (HKEx: 6837; Shanghai: 600837) takes advantage of positive market sentiment to make a major new share float. Both plays come as Hong Kong and the US get set to officially wrap up a banner year for fund raising by Chinese companies, fueled by strong investor sentiment. Everyone is racing to finish their fund raising before December 31, since the first quarter of the year is typically a quiet period for such activity and there’s no guarantee this wave of positive sentiment will last into 2015.
Let’s start with Haitong, which is taking advantage of bullishness towards Chinese brokerages to announce its new plan to raise up to HK$29.9 billion, or about $3.9 billion. (English article) The company, China’s second largest brokerage, will raise the funds through a private placement of 1.92 billion of its Hong Kong-listed shares. The sale price is HK$15.62 per share, marking a relatively large 16 percent discount to the company’s last closing price.
I was a bit surprised at the size of the discount, since Chinese brokerages have been hot stocks these last few weeks due to a late-year rally in China’s stock markets and also enthusiasm about a new program allowing Chinese and Hong Kong investors to trade in each others shares. Of course it’s also worth noting that Haitong’s Hong Kong shares were trading at HK$13.26 just a month ago, meaning they’ve risen 40 percent over that period.
The latest announcement says Haitong will use 60 percent of the money to develop its short selling and margin trading business, which are both in their infancy in China. I expect it will also use the funds to finance its planned purchase of Banco Espirito Santo de Investimento SA, which was announced earlier this month and marks Haitong’s first major global overseas acquisition. (previous post)
Next let’s look at Dalian Wanda, whose colorful founder Wang Jianlin has been talking up his company in the run-up to a $3.7 billion listing this month that will be the biggest for Hong Kong in 2 years. In his latest bid to get attention, Wang is talking about his theme park business, which is a bit sexier than its shopping malls that are currently the core assets of Dalian Wanda’s IPO.
According to the latest reports, Wang says that his company will ultimately compete with global theme park leader Disney (NYSE: DIS), and could someday open its own theme parks in the US. (English article) Wang made the remarks over the weekend as his company opened its inaugural $1.13 billion movie theme park in the interior Chinese city of Wuhan. (English article)
The Wuhan park is part of Wanda’s plans to spend $32 billion on new theme parks over the next 6 years, with a target of operating 200 children’s theme parks by 2020. It’s unclear from the reports if this theme park portfolio would be part of Dalian Wanda’s Hong Kong IPO, or if it is a separate asset. Dalian Wanda’s parent, Wanda Group, has also been approved for a $325 million IPO in China for its movie theater operations.
Wang Jianlin was never a person to think small, and I do find it a bit amusing that a man with no experience in the theme park business is suddenly deciding to challenge the world’s most famous operator. Wang doesn’t have much experience in entertainment either, though he’s built up a successful chain of movie theaters that is now one of China’s largest. I would caution him to move more slowly with this theme park initiative, which could cause headaches for the company if and when it runs into the inevitable problems of launching such a major new business without any previous experience.
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