PE-backed China Huarong trades flat after $2.3b HK IPO

The company sold 5.77 billion shares at HK$3.09 apiece after pricing the offering towards the bottom end of the indicative range with 70% of the offering covered by cornerstone investors. The inital plan was to raise up to $3 billion. At the conclusion of morning trading on October 30, the stock was trading at HK$3.09.

Eight strategic investors bought a 22.51% stake in Huarong in August 2014 for RMB14.54 billion ($2.35 billion). Of the three foreign investors, Warburg Pincus holds a 5.36% interest in the business - having been diluted by the offering of new shares and assuming the over-allotment option is not exercised - while Malaysia's Khazanah Nasional has 1.96% and Goldman Sachs has 0.38%.

Domestic players with stakes in the business include China Life (4.29%), CITIC Securities (2.05%), China International Capital Corp. (1.95%), COFCO (1.8%) and Fosun International (1.3%). The controlling shareholder is the Ministry of Finance with 64.5%, while the National Council for Social Security Fund has a 1.41% interest.

Huarong was set up in 1999 as one of four asset management companies (AMCs) tasked with resolving non-performing loans (NPLs) held by the major state-owned banks. One of its counterparts, China Cinda Asset Management, raised $2.9 billion through a Hong Kong offering in 2013. It also received a pre-IPO strategic investment that included several PE players.

The company divides its history into three phases: the policy phase between 1999 and 2004, when the AMCs raised capital from bond issuance and the central bank and used it to acquire distressed assets from the major state-owned banks; the transition phase of 2005-2010, when the AMCs started buying selling distressed assets on a commercial basis and also diversified their businesses; and the post-2010 commercialization phase, intended to prepare the AMCs for public listings.

Huarong is now involved in distressed asset management, financial services, and asset management and investment, with the first of these accounting for more than half of its income. As of year-end 2014, the company had 853 distressed asset projects with a gross value of RMB169.4 billion. It generated RMB18.6 billion during the year through the appreciation in asset value and fees arising from restructurings.

Overall net profit reached RMB13 billion in 2014, up from RMB10.1 billion the previous year. For the first six months of 2015, net profit was RMB9.87 billion.

The joint sponsors for the IPO were Goldman Sachs, HSBC, China International Capital Corp, Citi and Industrial and Commercial Bank of China.

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• Topics
• Exits
• Greater China
• Financials
• Financial Services
• IPO
• China
• Exit
• Warburg Pincus Asia
• CICC
• Khazanah Nasional
• Goldman Sachs
• Fosun Group