* WH Group raising funds to repay debt for Smithfield
* Listing comes after second attempt at an IPO
* Shares sold in IPO at HK$6.20 each, 11.5 times 2014 price
(Adds outlook for pork demand, analyst comment)
By Elzio Barreto
HONG KONG, Aug 5 WH Group Ltd, the
world's biggest pork company, surged 7 percent in its Hong Kong
trading debut on Tuesday after sharply scaling back valuations
in its second attempt at an IPO.
While WH Group's $2.1 billion offering is the third-largest
in Asia Pacific this year, it raised less than half the amount
originally sought. Investors shunned an earlier proposal, turned
off by ambitious pricing, sky-high executive compensation and
mismanaged marketing following a record hiring of 29 banks.
To get the deal done, the firm slashed the offer price and
hired just two banks, enabling it to repay a large chunk of the
debt it incurred in its $4.9 billion acquisition of hog producer
Smithfield Foods Inc - the biggest purchase of a U.S. firm by a
Chinese company. Including debt, the deal was valued at $7.1
Although it has had a bumpy ride to market, many investors
believe the company, formerly known as Shuanghui International
Holdings, will do well in the long term, given China's huge and
growing appetite for pork and its highly fragmented local
"They're going to have a pretty distinct advantage within
China in terms of assets. There aren't many companies with the
same sort of scale that they have and also international assets,
so they can leverage that," said Stephen Yang, an analyst at Sun
Hung Kai Financial in Hong Kong.
Per capita pork consumption in mainland China totalled just
41.36 kilograms in 2013, around half the 80.13 kg in Hong Kong,
according to the IPO prospectus. Annual per capita consumption
of animal protein in China was 55.79 kg, paling in comparison to
the 111.38 kg in the United States.
WH Group shares closed at HK$6.66, up from its IPO price of
HK$6.20 and giving the company a market value of $12.3 billion.
The shares at one point rose as high as HK$6.86.
The IPO price represents a forecast price-to-earnings ratio
for 2014 of 11.5 times, compared with a P/E of more than 20
times when the deal first went to market three months earlier.
That is also much lower than an average ratio of 23.9 times
for U.S. meat processors according to a Sun Hung Kai Financial
report. The average for international meat processors including
Brazil's JBS SA and BRF SA is 20.4 times.
"When you relaunch deals that previously failed, you got to
do it this way," said a source with direct knowledge of the
offering. "This is a great lesson for Chinese corporates,
learning through pain."
WH Group Chairman Wan Long, also known as China's chief
butcher, told reporters attending the listing ceremony that the
downsizing of the IPO had been "based on the needs of the
The share performance "is okay today. It should be better in
the future," he added.
The company, which counts private equity firm CDH
Investments, Goldman Sachs and Singapore state investor
Temasek Holdings among its shareholders, offered 2.57
billion new shares or roughly 18 percent of the company.
CDH, Goldman and Temasek had initially hoped to sell WH
Group shares but later backtracked after the first botched IPO
attempt. CDH owns a 31.2 percent stake in WH Group after the
IPO, while Temasek holds 2.6 percent and Goldman 3.2 percent.
Many WH shareholders have agreed not to sell any shares for
at least six months following the listing. CDH Investments has a
one-year lock-up on its holdings, while WH Group's chairman and
other members of the firm's management team have a three-year
The deal could grow by 385.1 million shares and total as
much as $2.4 billion if underwriters exercise an option to meet
In its second IPO attempt, the retail portion generated
red-hot demand, accounting for 55.22 times the shares on offer,
the company said in a filing on Monday. The institutional
tranche of the IPO was "moderately over-subscribed."
Funds raised in the IPO will go towards paying down the $2.5
billion tranche of a loan maturing in 2016, while a remaining
$1.5 billion tranche maturing in 2018 will be paid with cash
from operations and future debt financing, WH Group has said.
(Additional reporting by Dancy Zhang and Stephen Aldred;
Editing by Edwina Gibbs)