* Retail demand for $37 mln Hong Kong IPO rockets
* Rising China incomes spur steady growth in pork market
* Planned WH Group IPO to be HK's biggest since Oct 2010
By Elzio Barreto and Dominique Patton
HONG KONG/BEIJING, Feb 21 Hong Kong's mom and
pop investors are clamouring for rare shares in a bite-sized
Chinese pork supplier this week, heralding a potential stampede
when industry giant WH Group comes to market in April with what
could be a $6 billion listing.
With fresh Chinese meat sector listings few, the chance to
buy into a vast, steadily growing industry has made little-known
Huisheng International Holdings Ltd popular. Its initial public
offering, due to be priced later on Friday, generated retail
demand 20 times the $37 million shares on offer in the first day
As shoppers in China, the world's biggest pork consumer,
grew more affluent, per capita spending on meat, poultry and
processed products more than doubled to 1,184 yuan ($190) by
2012 compared with 2006, Huisheng said in its IPO prospectus.
The company cited Chinese government statistics and a report
prepared by research firm Ipsos.
Strong demand for Huisheng, raising funds for freezer
facilities and new farms, bodes well for WH Group. Its upcoming
IPO is expected to be Hong Kong's biggest listing since 2010 -
and the seventh-biggest on record - in a banner year for the
city's investment bankers.
Previously known as Shuanghui International Holding, WH
Group is a powerhouse of China's meat trade and last year
acquired U.S. pork producer Smithfield Foods Inc, which had
sales of $13.2 billion in the fiscal year ended April 2013.
"The fundamentals, the company and the business factors are
better (for WH Group)," said Alvin Cheung, associate director at
Prudential Brokerage in Hong Kong. "It's a quite different and
much more diversified company."
When the retail portion of Huisheng's offer closed on
Thursday, demand for shares had soared to a value of $1.34
billion, according to brokerage Phillip Securities, which
provides margin loans to retail investors looking to buy into
Based in the city of Changde in China's southern Hunan
province, Huisheng's prospectus casts a spotlight on a pork
industry that supplies China's most popular meat and has had to
deal with recurring food safety scares in its growth.
Pork sales in China rose to 51.8 million tonnes in 2012, 18
percent higher than in 2007, and are forecast to reach 58.5
million tonnes in 2017, according to research firm Euromonitor
International. Pork accounts for nearly two-thirds of China's
meat sales, with poultry a distant second with 20 percent.
According to Huisheng's prospectus, its most profitable
products include hogs' internal organs, heads, tongues, hooves,
tails and blood, where it gets gross profit margins of 60
percent. Revenue rose 1.8 percent to 803.9 million yuan in the
first nine months of 2013 compared with a year earlier, while
profits climbed 3.4 percent over the same period to 69.9 million
Huisheng is offering 100 million new shares in the IPO,
while its chairman, Ding Biyan, is offering 20 million shares in
a range of HK$1.45-HK$2.00 per each. The company plans to use 47
percent of proceeds from the IPO to buy freezer storage
facilities, with another 53 percent set aside to develop new
breeding farms - a move to help it keep tighter control of its
supplies and avert potential food scares.
"Investors like the concept of vertically integrated
producers, which they think can ensure food safety, a top
concern in China right now," said Pan Chenjun, a senior analyst
at Rabobank in Beijing.
"Without vertical integration, producers need to outsource
from many suppliers including small farmers, and this gap in the
supply chain means food safety issues can occur."
Cinda International Securities Ltd. was hired as sole global
coordinator and bookrunner for the Huisheng IPO, with five other
brokerages also helping to underwrite the deal. The banks stand
to earn $1.11 million in underwriting commissions, equivalent to
3 percent of the total IPO.
WH Group's planned April listing will be backed by Chinese
private equity firm CDH Investments. The company named BOC
International, Citic Securities International, DBS
, Goldman Sachs, Morgan Stanley, Standard
Chartered and UBS as sponsors of the IPO.
($1 = 6.0764 Chinese yuan)
(Reporting by Elzio Barreto in Hong Kong and Dominique Patton
in Beijing; Editing by Denny Thomas and Kenneth Maxwell)