Hong Kong retail investors join big funds in rush for Cinda IPO

Wed Dec 4, 2013 1:43am EST

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* Deal seen pricing at top of range, raising about $2.5 bln

* Retail tranche more than 160 times oversubscribed-source

* Global investors and Beijing support drive demand

By Elzio Barreto

HONG KONG, Dec 4 (Reuters) - Hong Kong's army of mom and pop investors has piled into China Cinda Asset Management Co Ltd's initial public offering, lured by the marquee global names already buying into Hong Kong's biggest IPO this year as well as strong backing from Beijing.

Setting aside unfamiliarity with how Cinda makes money out of managing bad loans, retail investors joined institutional buyers in placing a deluge of orders. That's encouraging Cinda to price the IPO at the top of its indicative range, about $2.5 billion, one person with direct knowledge of the matter said.

The final price will be set on Thursday morning Hong Kong time, with the trading debut slated for Dec. 12.

A separate person with knowledge of the IPO said the retail tranche was more than 160 times oversubscribed, unusual for such a large deal. Demand from institutions was also brisk enough to prompt early closure of that side of the offering.

"This kind of company is very new to the market, you can't find any peers compared to Cinda. It's the only one going to be listed in Hong Kong (for now), so there's the novelty factor," said Jasper Chan, corporate finance officer at Hong Kong brokerage Phillip Securities.

Robust appetite for the original $123 million retail tranche of the IPO has defied expectations of some in the market who feared a lukewarm reception from individual investors, usually drawn to easy-to-understand businesses, unlike Cinda's complicated bad debt trading activities.

While Cinda's business model may be complex, it's lucrative. It said in the IPO prospectus that profit attributable to equity holders was 4.06 billion yuan ($666 million) for the six months ended June 30. That was up 36 percent from 2.99 billion yuan a year earlier.

Cinda's offering has an initial allocation of 5 percent for individual investors. But that can rise as high as 20 percent if over-subscription is 100 times or more, according to its prospectus, with shares being clawed back from the offering to institutions.

CORNERSTONE INVESTORS

Big global investors such as Norway's sovereign wealth fund and hedge fund Och-Ziff Capital Management Group LLC have already secured their stock.

They are among the 10 so-called cornerstone investors who committed to buy $1.1 billion, or 45 percent of shares, in the IPO, seeing growth prospects for a bad loan manager as some Chinese companies struggle to cope with economic slowdown.

Created by the state in 1999 to absorb the bad debts of China Construction Bank (CCB), Cinda has expanded to take on non-performing loans and assets from other banks and businesses. The Ministry of Finance will still control nearly 70 percent of the company after the IPO.

Retail investors take margin loans to buy into Hong Kong IPOs and place large orders to bolster chances of getting a better allocation. Phillip Securities alone had HK$13.2 billion ($1.7 billion) in Cinda margin loans, enough to cover the retail tranche of the IPO nearly 14 times.

Cinda is offering 5.32 billion shares in a range of HK$3.00-3.58, equivalent to a price-to-book ratio of 1.10 to 1.30 times for 2013. Chinese banks listed in Hong Kong trade at an average of 1.2 times trailing P/B, according to Thomson Reuters data.

"In the long term, people think that Cinda has lots of business to do because there's lots of bad debts," said Alvin Cheung, associate director at Prudential Brokerage.

Cheung added the strong demand would likely bode well for Cinda's debut. He said he expects a first-day trading pop of 5-10 percent as both institutional and retail investors that couldn't get into the original deal jostle for shares. ($1 = 7.7524 Hong Kong dollars) ($1 = 6.0924 Chinese yuan)

(Additional reporting by Fiona Lau of IFR; Editing by Denny Thomas and Kenneth Maxwell)

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