Sinochem's backtrack sends a fresh IPO warning

China Literature

31/01/2019 02:27

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are his own.)
    By Alec Macfarlane
    HONG KONG, Jan 31 (Reuters Breakingviews) - Sinochem is
sending a warning message to Hong Kong investors. The Chinese
chemicals and oil giant has shelved plans to float its refining
and trading unit this year and raise up to $2 billion.
State-owned enterprises once listed regardless of market
conditions, thanks to support from Beijing. The initial public
offering U-turn should worry hopefuls without government
support.
    Sinochem hired banks early last year to list the unit, as
part of a broader reorganisation ahead of its widely expected
merger with rival ChemChina. Back then, things were rosy in Hong
Kong. A number of technology companies had listed successfully,
including Tencent-backed  0700.HK  publisher China Literature
 0772.HK  and web insurer ZhongAn  6060.HK : both were wildly
oversubscribed and traded well upon listing. 
    Things have turned sour since. Losses from the May flotation
of Ping An Healthcare and Technology  1833.HK  have put off Hong
Kong retail investors. Smartphone maker Xiaomi  1810.HK 
disappointed investors in July. Takeaways-to-taxis giant Meituan
Dianping  3690.HK , one of 2018’s better stories, is now
underwater. Trade tensions between China and the United States
have helped drag the Hang Seng index almost 20 percent down from
a January 2018 peak.  
    In the past, that would not have mattered for Sinochem. In
2016, an otherwise poor year for listings in Hong Kong, a flurry
of large, state-owned companies still managed to float, thanks
to a strong dose of support from Beijing. So-called cornerstone
investors, who buy shares in an offering in advance to provide a
safety net, helped Postal Savings Bank of China  1658.HK  list
above book value, when most peers were trading below that.   
    Sinochem no doubt had similar options. It put the offering
on ice regardless. Reuters reported the company would only have
raised around half of what it had originally planned, suggesting
valuation concerns played a role among institutional investors.
But the fact that even typically price-insensitive Beijing
didn’t rush to Sinochem’s rescue speaks volumes for the fate of
other hopefuls waiting in the wings – especially those without
mainland support. Nine Hong Kong IPOs raised a total of roughly
$700 million this month, against 25 last January, which raised
close to $2 billion, according to Dealogic. It may not get
better any time soon.
    On Twitter https://twitter.com/AlecMac11

    
    CONTEXT NEWS
    - Sinochem Energy, a unit of Chinese state-owned oil and
chemicals group Sinochem, has allowed its application for an
initial public offering in Hong Kong to lapse, according to a
Jan. 29 update on Hong Kong Exchanges and Clearing’s website. 
    - The company had sought to raise up to $2 billion from the
IPO. However, it put the listing on hold late last year because
early investor feedback suggested it was only likely to raise
roughly $1.2 billion to $1.3 billion, Reuters reported on Jan.
30, citing a source with knowledge of the matter. 
    - The plan will be shelved for the next one to two years,
the source added. 
    - Sinochem Energy operates in oil and petroleum products
trading, refining and petrochemicals, storage and logistics.
    - The offering was part of a broader reorganisation by
Sinochem, which is widely expected by analysts and investors to
merge with fellow state-owned giant ChemChina. 
    - For previous columns by the author, Reuters customers can
click on  MAC/ 
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    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
China's Sinochem Energy lets Hong Kong IPO application lapse   
 urn:newsml:reuters.com:*:nL5N1ZU0ME
BREAKINGVIEWS-A cooling China may chill Sinochem Energy's IPO   
 urn:newsml:reuters.com:*:nL4N1XR08D
BREAKINGVIEWS-Chinese mega-merger should catalyze chemical M&A  
  urn:newsml:reuters.com:*:nL4N1UR1P1
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 (Editing by Clara Ferreira Marques and Katrina Hamlin)
 ((alec.macfarlane@thomsonreuters.com; Reuters Messaging:
alec.macfarlane.thomsonreuters.com@reuters.net))