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Paper supplier to raise US$435.9m in HK listing
By Vincent Lam (China Daily)
Updated: 2006-02-21 06:25
HONG KONG: The nation's largest packaging paper supplier Nine Dragons Paper
is set to raise up to HK$3.4 billion (US$435.9 million) in a Hong Kong initial
public offering (IPO) in a bid to fund their expansion to meet the nation's
soaring demand for wrapping paper.
The listing of Nine Dragons Paper is the largest IPO so far this year. The
market fever for a new debutant is running high following the 80 per cent surge
of newly-listed Yorkey Optical on its first trading day last week.
"Mainland resources stocks are hot in the market on the back of the nation's
hunger for all kinds of resources Nine Dragons would be no exception," said
Kenny Tang, associate director of Tong Tai Securities. "With the recent success
of Yorkey Optical, the market is casting an enormous expectation on this stock
on its debut."
Starting yesterday, Nine Dragons is offering 1 billion shares, or 25 per cent
of its enlarged share capital at a proposed range between HK$2.85 (37 US cents)
and HK$3.4 (44 US cents).
Ninety per cent of the total offering will be sold to institutional investors
with the remaining 10 per cent for retail subscription.
A number of local billionaires including chairman of Kerry Properties Kuok
Hock-nien, chairman of New World Development Cheng Yu-tung and chairman of
Henderson Land Lee Shau-kee all have placed big orders of the shares: US$20
million worth of shares each.
The company currently has a production capacity of 3.3 million tons and has a
market share of 17 per cent on the Chinese mainland. It plans to add new
production lines to raise production efficiency and consequently increase market
share.
Nine Dragons estimates that its capital expenditure for 2006 will be 1.6
billion yuan (US$200 million) and will rise to 2.234 billion yuan (US$280
million) in 2007.
The proceeds from the IPO would be used for repaying part of the debts and
lowering the gearing ratio to about 187 per cent from 232 per cent at the end of
the September 2005.
The company also intends to further lower the gearing ratio to 40-50 per cent
in order to achieve the target. The company has 1.166 billion yuan (US$146
million) cash on hand.
By comparison, its Hong Kong-listed peer Lee & Man Paper, which has only
about half of Nine Dragon's capacity, runs at a gearing ratio of about 35 per
cent.
"As the nation's largest player in this market, Nine Dragons would definitely
grab more market attention than Lee & Man," Tang said.
The popularity of the shares is no surprise to the market with its attractive
valuations and the strong performance of Lee & Man, which is the second
largest packaging paper supplier in China.
The offering of Nine Dragons is priced at the forward price/earnings ratio
(P/E ratio) of 11.4 to 13.6 times compared with 15 times of Lee & Man.
BNP Paribas Peregrine Capital and Merrill Lynch Far East are the sponsors for
the deal.
(China Daily 02/21/2006 page11)
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