China Galaxy IPO raises $1.1b, priced for first day pop

HONG KONG - State-owned China Galaxy Securities Co Ltd raised $1.1 billion in Hong Kong's biggest IPO in six months, pricing the offer at the low end of its marketing range as it looks for a first day pop on its debut next week.

The IPO from China's seventh-largest brokerage comes after a particularly tough year for offerings in the region. Its May 22 debut, and that of Sinopec Engineering (Group) Co Ltd a day later are set to be bellwethers for a slew of Hong Kong offerings in the works.

Although pricing was set at the lower end of the indicative range, this was in part due to falling stock prices in recent days for bigger rivals Citic Securities Ltd and Haitong Securities Ltd, said Jasper Chan, corporate finance officer at Phillip Securities in Hong Kong.

On the plus side, retail investors flocked to the deal, with the tranche set aside for them more than 15 times oversubscribed, Thomson Reuters publication IFR reported.

"The market is rebounding, sentiment is quite good here. IPOs are coming back this year, with a lot of attractive deals coming up," said Chan.

The offering was the largest in Hong Kong since People's Insurance Company (Group) of China went public in late November with a $3.6 billion IPO. It will be surpassed on Thursday, when Sinopec Engineering (Group) Co Ltd prices its up to $2.2 billion IPO.

The China Galaxy and Sinopec Engineering deals underscore a pick-up in activity after IPO issuance in Asia ex-Japan plunged 56 percent to $3.3 billion in the first quarter, making it the worst start to a year for new share listings since the first quarter of 2009, according to Thomson Reuters data.

"It'll be quite important to see how these two do once they start trading," said Philippe Espinasse, a former investment banker with Nomura and UBS in Hong Kong and author of IPO: A Global Guide.

"How they perform over the next few days will be key for the other transactions coming into the market."

Other large deals likely to hit Hong Kong in coming weeks include a series of commercial real estate spin-offs from Hong Kong property and investment companies, including an up to $1 billion IPO by NW Hotel Investments, which is part of New World Development.

Great Eagle Holdings Ltd started a roadshow on Monday for an up to $600 million IPO for its Langham hotel chain, while property and infrastructure group Hopewell Holdings is looking to raise as much as $800 million from a spin-off of its property and hospitality business, Hopewell HK Properties.

IPOs in Hong Kong have fallen by a fifth so far in 2013 to $1.05 billion. After being the global IPO hub for several years, the city had $7.72 billion worth of deals in 2012, its lowest volume since the 2008 global financial meltdown.

Lower-end pricing

China Galaxy and its controlling shareholder sold 1.57 billion shares at HK$5.30 each, said sources with direct knowledge of the deal, who were not authorized to speak publicly on the matter.

The company launched the IPO on May 6, with an indicative range of HK$4.99 to HK$6.77 per share. On Tuesday it narrowed the range to HK$5.28-5.43 per share.

China Galaxy Securities offered 1.5 billion new shares in a primary offering, while its controlling shareholder, Galaxy Financial Holdings, sold 67.7 million existing shares.

Galaxy Financial Holdings is controlled by Central Huijin, a unit of sovereign wealth fund China Investment Corp.

The company secured commitments for $360 million worth of shares from seven investors including Malaysia's sovereign wealth fund Khazanah Nasional, insurers AIA Group and Sino Life Insurance, and a unit of Sinopec Group.

China Galaxy said it will use most of the IPO proceeds to expand its margin financing and securities lending business, with a portion of the funds also going towards expanding its securities trading business.

ABC International, China Galaxy International, Goldman Sachs, JPMorgan and Nomura were hired as joint global coordinators of the IPO, with another 16 banks also acting as joint bookrunners. The record number of underwriters is a sign of lean times for Asia's once booming stock issuance industry.

The banks stand to earn as much as $33 million in fees for managing the IPO, equivalent to a 2 percent underwriting commission and a 1 percent incentive fee paid to certain underwriters, according to the IPO prospectus.