Chinese Bottled-Water Giant Taps Hong Kong IPO Market
September 07 2020 - 9:40AM
Dow Jones News
By Joanne Chiu
Shares in China's top bottled-water company surged in
gray-market trading ahead of its Hong Kong debut, after investors
thirsty for new stock sales placed nearly $150 billion of orders
for a $1.1 billion deal.
The warm reception for Nongfu Spring Co. shows Hong Kong
investors remain eager for ways to bet on China's increasingly
affluent consumers. That is a good omen for Yum China Holdings
Inc., the operator of KFC and Pizza Hut in China, whose new Hong
Kong stock starts trading on Thursday.
The initial public offering price gave Nongfu Spring a market
value of $31 billion, making it roughly two-thirds as big as Danone
SA, the French company behind Evian and Volvic.
Gray-market pricing from two Hong Kong brokers suggested Nongfu
Spring could surge in value after it starts trading officially on
Tuesday, potentially overtaking Danone. Nongfu Spring shares were
quoted at 44.05 Hong Kong dollars ($5.68), more than double its IPO
offer price of 21.50 Hong Kong dollars, on a platform operated by
Futu Securities. The stock was quoted up 92% on a platform run by
Bright Smart Securities.
Based in the eastern province of Zhejiang, Nongfu Spring was
founded in 1996 by businessman Zhong Shanshan, and uses the slogan
"Nongfu Spring tastes a bit sweet."
The company ranked top in China's packaged drinking-water market
last year, with nearly 21% market share, according to Frost &
Sullivan research cited in its prospectus. It also sells tea-based
drinks, juices and energy drinks.
Net profit rose 37% to 4.9 billion yuan ($716 million) last
year, although sales and profit suffered in early 2020 as the
pandemic disrupted supply chains and everyday life.
Hong Kong's IPO market lures many mom-and-pop investors, who
often rush to subscribe to offerings before flipping shares for
short-term gains, but in this case big institutions also laid out
huge orders for Nongfu Spring.
Individuals placed nearly $87 billion of orders, or nearly 1,050
times the small portion of the deal reserved for them, according to
a filing. That triggered an adjustment boosting their slice of the
deal to 27% from 7%. Institutional buyers made 60 times more orders
than shares on offer, implying they placed about $61 billion of
orders.
Five cornerstone investors, including Singapore sovereign-wealth
fund GIC Private Ltd., Fidelity International and U.S.-based
hedge-fund manager Coatue Management LLC, had endorsed the deal by
committing to buy a total $320 million of stock wherever the deal
priced.
The IPO valued Nongfu Spring at nearly 29 times next year's
forecast earnings, according to Arun George, an analyst who
publishes on the independent research platform Smartkarma. That is
nearly twice Danone's equivalent price-to-earnings multiple of 15
times and above Coca-Cola Co.'s roughly 23 times.
The IPO was led by China International Capital Corp. and Morgan
Stanley. The deal's size could increase by 15% if underwriters
exercise what is called a greenshoe option.
Write to Joanne Chiu at joanne.chiu@wsj.com
(END) Dow Jones Newswires
September 07, 2020 09:25 ET (13:25 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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