Tianhe tests investor reaction in HK

Employees are seen at the stand of Tianhe Chemicals Group during the 13th China International Lubricants and Technology Exhibition in Shanghai, China, Nov 1,  2012. [Photo/IC]

Tianhe Chemicals Group Ltd, the largest lubricant additives producer in China, began its initial public offering on Monday in Hong Kong, where it aims to raise as much as HK$6.34 billion ($818 million).

The Liaoning-based company will offer 2.8 billion shares at HK$1.75 to HK$2.25 each, its IPO document shows. About 27.48 percent of the shares are existing shares held by management, documents from the stock exchange of Hong Kong show.

About HK$1.54 billion, or 39.4 percent of the net proceeds assuming an offer price of HK$2 per share, will be used to repay a loan backed by Driven Global, a unit controlled by the Wei family, the founder and operator of Tianhe Chemicals.

The rest will be equally divided and invested in the development of lubricant additives and specialty fluorochemical products, the prospectus said.

The final offer price and the results of allocations are scheduled to be announced on June 19. Trading of the stock is expected to kick off the next day.

Morgan Stanley, UBS AG and Bank of America Merrill Lynch are joint sponsors.

"We suggest investors stay clear of this IPO," said Alvin Lao, senior officer of the investment and customer service department of Emperor Securities Ltd.

"Currently, the market is not strong enough to support an offering of this size. Even brand names such as China CNR Corp failed to trade well after their debuts. (Baguio Green Group Ltd), a small cap hundreds of times oversubscribed, hasn't performed well, either. "Tianhe is also likely to tumble beneath its offer price or trade poorly."

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