The company is offering 1.15bn shares, with price guidance of HK$1.55-HK$2.05, translating to a price to book multiple of 0.8x-1.0x, according to bankers close to the transaction. There is also an overallotment option of 80m shares.
If the deal prices at the top of the range, it will net the company HK$2.35bn ($304m) if the greenshoe option is not exercised.
This is rather different to the 988m primary shares the company offered earlier this year, which came at a price range of HK$2.28-HK$2.88. At the top end, Hanhua would have raised HK$2.85bn.
But the deal never materialised. Hanhua was expected to price the trade on March 6, but pulled it a day later citing difficult market conditions.
This time around bankers are hoping for better luck. “There are no cornerstone investors, but we have good visibility on the books already,” said a banker on the transaction.
Another added: “The return to the market now is based on the company’s strategy to continue to keep growing.”
Different comps
Hanhua’s P/B ratio of 0.8x-1.0x is based on comparables that include small Chinese banks, as well as larger non-financial institutions. But the banker added that their ratios “are all over the place”.
The closest comparisons are Credit China Holdings and China Financial Services Holdings. The former had a P/B ratio of 3.6 times for the most recent quarter, while the latter had a P/B ratio of 0.99 times. They have market capitalisations of HK$5.8bn and HK$2.26bn, respectively. If Hanhua prices at the bottom, it will have a market capitalisation of HK$7.1bn based on an offering of 1.15bn shares.
“It is hard to say whether the pricing range is at a discount or premium,” said the second banker. “Compared to some it is at a premium, while with others it is at a discount.”
Bookbuilding began on June 3 and will last until June 12. Final pricing will be determined on June 13, with the IPO scheduled for June 19.
If pricing comes out at the midpoint of the range, Hanhua will have proceeds of HK$1.96bn after accounting for expenses. Some 70% of this will go towards increasing the firm’s capital base for its micro and small loan business, 30% for its credit guarantee business and 10% towards developing new products and services, to replenish its working capital and for general corporate purposes.
A total of 1.035bn shares are for institutional investors while 115m shares are offered to retail investors. The total offering represents 25.1% of the enlarged share capital of the company, and 26.4% of the over-allotment option is exercised.
Following the offering, non-executive director Tu Jianhua — through Loncin Group, Loncin Holdings and Chongqing Huitai Investment — will own 32.15% of the issued share capital. Executive director Zhang Guoxiang will hold 62.1% of Huitai.
CICC and China Galaxy International Securities are the joint sponsors as well the joint global co-ordinators, joint bookrunners and joint lead managers alongside Credit Suisse and GF Hong Kong. CIMB, CCB International, Haitong, ICBC (International), BOCOM International and DBS are the joint bookrunners and joint lead managers.
China’s Hanhua provides credit-based guarantees and financing solutions to small and medium sized enterprises in China, with its operations largely focused on Chongqing and Sichuan. It is the largest credit guarantee company in terms of the number of provinces it covers, and the third-largest lender of micro and small loans in China, according to Euromonitor.
The company had profits before tax of Rmb472m in 2013, down from the Rmb633.9m it reported the previous year. It was put down to a combination of slower revenue growth, increase in provision for guarantee losses, increase in impairment losses and an uptick in administrative expenses.