Significant volatility is persistently characterizing Asian capital markets since this summer’s fears concerning a hypothetic economic slowdown of the Chinese economy. In addition, the current low interest rates climate characterizing the global economy is reflected in historically low borrowing costs. The combination of such two trends naturally hints towards a reduced market for initial public offerings on Asian stock exchanges as investors are on one side afraid of the risk attached to the stock’s price and on the other side attracted by borrowing options that come for a low price without giving away control stakes in the management of the company.
Nevertheless, the market for IPOs, especially on the Hong Kong stock exchange, keeps growing at a steady pace. The last operation reinforcing such trend is the IPO on Dali Foods Group Company Ltd which managed to raise over US$1.15 billion on the HKE, marking the largest offering of a private Chinese company for the year. Dali Foods priced the IPO at US$0.68 (5.25 Hong Kong Dollars) per share, issuing roughly 1.7 billion shares.
The price was indeed set in the low end of the range of expectations (HK$5.00 – HK$ 6.15), following orders concentrated in the lower half of the range. Pricing in the upper half was not possible due to the weak demand to cover the book at that level. Dali Foods Group is raising money on the HKE in order to increase the production as China’s government plans to rebalance the economy toward higher relative domestic consumption
Bank of America Merrill Lynch and Morgan Stanley acted as joint book-runners. According to the final demand, the price could have been set at HK$5.575 (6.1% above the actual price), however the American banks have recommended to be slightly conservative to ensure the quality of investors in the final book. At the final price of HK$ 5.25, the Chinese snack and drinks manufacturer has a market capitalization of US$9.2 billion and a P/E ratio of approximately 17.Cornerstone investments played a pivotal role in driving the IPOs success. Three investors bought together US$305 million, hence accounting for 27% of the total operation value.
The final valuation of Dali’s Food Group appears in line with other food manufacturers listed on the Hong Kong Exchange such as Tingyi and Want Want, traded at P/E on a rolling twelve month basis of 15.9 and 16.8 respectively.
The lightly higher valuation of Deli seems to reflect a more diversified product range spanning cakes, brad, chips, energy drinks beverages etc. and the growth expectations attached to the boosting non-alcoholic beverage market. It is reasonable to expect the company, and its outstanding shares to react sensitively to the government provisions seeking to boost domestic demand.
Alessandro Saldutti
Nevertheless, the market for IPOs, especially on the Hong Kong stock exchange, keeps growing at a steady pace. The last operation reinforcing such trend is the IPO on Dali Foods Group Company Ltd which managed to raise over US$1.15 billion on the HKE, marking the largest offering of a private Chinese company for the year. Dali Foods priced the IPO at US$0.68 (5.25 Hong Kong Dollars) per share, issuing roughly 1.7 billion shares.
The price was indeed set in the low end of the range of expectations (HK$5.00 – HK$ 6.15), following orders concentrated in the lower half of the range. Pricing in the upper half was not possible due to the weak demand to cover the book at that level. Dali Foods Group is raising money on the HKE in order to increase the production as China’s government plans to rebalance the economy toward higher relative domestic consumption
Bank of America Merrill Lynch and Morgan Stanley acted as joint book-runners. According to the final demand, the price could have been set at HK$5.575 (6.1% above the actual price), however the American banks have recommended to be slightly conservative to ensure the quality of investors in the final book. At the final price of HK$ 5.25, the Chinese snack and drinks manufacturer has a market capitalization of US$9.2 billion and a P/E ratio of approximately 17.Cornerstone investments played a pivotal role in driving the IPOs success. Three investors bought together US$305 million, hence accounting for 27% of the total operation value.
The final valuation of Dali’s Food Group appears in line with other food manufacturers listed on the Hong Kong Exchange such as Tingyi and Want Want, traded at P/E on a rolling twelve month basis of 15.9 and 16.8 respectively.
The lightly higher valuation of Deli seems to reflect a more diversified product range spanning cakes, brad, chips, energy drinks beverages etc. and the growth expectations attached to the boosting non-alcoholic beverage market. It is reasonable to expect the company, and its outstanding shares to react sensitively to the government provisions seeking to boost domestic demand.
Alessandro Saldutti