April 11, 2014
China''s WH Group launches US$5.3 billion IPO in Hong Kong
Chinese pork company WH Group Ltd, has launched a Hong Kong initial public offering (IPO) of as much as US$5.3 billion in the second-largest ever IPO by a food and beverage company.
The IPO is coming at a time when Hong Kong''s stock market has been hit by volatility arising from concerns about political tensions in Russia, slower growth in China and when the US Federal Reserve may raise borrowing costs.
WH Group and some of its shareholders are offering shares in a relatively wide range of HKD8.00 to HKD11.25 (US$1.03 to US$1.45) each. A total of 3.65 billion new and existing shares will be offered, putting the deal at up to HKD41.06 billion (US$5.3 billion), according to a term sheet.
WH Group, whose products include Smithfield ham, Carando pepperoni and Farmland bacon in the US, has been pre-marketing the IPO since last week. It plans to use some of the proceeds to pay down debt it took as part of its US$4.9 billion takeover of US-based Smithfield Foods Inc. last year, people familiar with the plans have said.
The group has "a good anchor book", though it has signed no cornerstone investors due to volatile global markets, a source familiar with the deal said, declining to be identified because details of the IPO process have not been publicly disclosed.
Typically, a deal the size of WH Group''s would tap cornerstones, which receive a guaranteed allocation in exchange for agreeing to retain their stakes for a set period.
Though Hong Kong''s shares are trading at their 11-week highs, the benchmark stock index is down about 2.3% so far in 2014, bouncing between gains and losses of more than 7% along the year.
Shares of small Chinese pork producer Huisheng International Holdings Ltd have fallen 14.6% since their debut in Hong Kong on February 28. Its tiny US$32 million IPO, which was swamped by a horde of mom and pop investors, was seen as one gauge for investor demand for consumer stocks.
The WH Group listing would be the world''s second-biggest ever food and beverage IPO after Kraft Food Inc.''s US$8.7 billion deal in June 2001. It would also be the largest new listing in the Asia-Pacific since AIA Group Ltd raised US$20.5 billion in October 2010.
WH Group could increase the size of the IPO to US$6.11 billion if underwriters exercise a green-shoe option to meet additional demand.
Pricing for the IPO is slated for April 22, with the shares making their debut on the Hong Kong stock exchange on April 30. WH Group is banking on the growth potential of Chinese demand for pork and processed meat in order to draw investors to its IPO. The takeover of Smithfield will help WH Group''s Chairman and chief executive officer Wan Long, known as China''s "Chief Butcher," secure a steady supply of pork to meet the expected demand growth at home, people in the industry have said.
The group listed its Henan Shuanghui Investment & Development Co Ltd unit in December 1998 in Shenzhen and owned 73.3% of the unit as of December 2013, with the remainder of the shares trading publicly. Its acquisition of Smithfield, completed in September last year, would help secure supplies to China, where WH Group expects will account for most of the world''s pork consumption growth in the next few years.
Global pork consumption grew an average 1.97% a year from 2008-12 and is forecast to expand 1.99% from 2012-18, WH Group said in its preliminary prospectus, citing estimates from research firm Frost & Sullivan. The bulk of the growth will come from China, where consumption is set to expand 3.1% a year through 2018, the company said.
In 2012, per capita consumption of animal protein in China reached 53.9 kilogrammes, paling in comparison to the 111.29 kilogrammes in the US, according to the prospectus.