Yitai Coal Secures $388 Million Cornerstone Investment for IPO; PICC to Delay $4 Billion Listing

In the latest sign of uncertain prospects for initial public offerings in Asia, Inner Mongolia Yitai Coal Co. (900948.SH) said Wednesday it has secured backing from two Chinese government-linked companies as cornerstone investors for its IPO in Hong Kong, while, separately, people familiar with the situation said that People's Insurance Co. (Group) of China Ltd. will postpone its US$4 billion Hong Kong IPO that was planned for July.

Yitai Coal said it has secured commitments from cornerstone investors, including two units of Chinese state-owned firms, for US$388 million--more than a third of its up to US$1.1 billion initial public offering in Hong Kong. The company also said it made a deal with one of its IPO managers for the latter to buy up US$100 million worth of any unsold shares, increasing the chance that the deal will go ahead.

The Yitai Coal IPO is the biggest in Hong Kong since Chinese brokerage Haitong Securities Co. raised US$1.8 billion from its April deal, and comes in a market where big deals have been dwindling. Investor confidence has been shaken by turbulent global financial markets and Facebook's poor performance since its Nasdaq listing in May. Major casualties include London jeweller Graff Diamonds Corp., which postponed its US$1 billion Hong Kong IPO, and Formula One, which delayed a US$2.5 billion IPO in Singapore due to less than ideal market conditions.

Also on Wednesday, people familiar with the situation said state-owned Chinese insurer People's Insurance Co. (Group) of China Ltd. had decided to delay its plan to list shares in Hong Kong in July, but could launch its up to US$4 billion initial public offering as soon as September.

PICC Group, the parent of Hong Kong-listed property insurer PICC Property & Casualty Co. (2328.HK), had originally planned to list in Hong Kong in July after receiving listing approval from the Hong Kong stock exchange last week, but changed its mind due to weak market conditions.

Yet, others have pressed ahead with their offerings. China Nonferrous Mining Corp. (1258.HK) priced its US$246 million IPO Tuesday, a week after Huadian Fuxin Energy Corp.'s US$319 million IPO.

Meanwhile, Yitai Coal started taking orders from institutional investors Wednesday and is scheduled to list on the Hong Kong bourse on July 12, according to a term sheet.

The seven cornerstone investors are Chinese state-owned Datang International Power Generation Co. (0991.HK), which is buying US$100 million worth of shares, Chinese coal producer Inner Mongolia Man Shi Investment Group Ltd. and Vanzip Investment Group, both of which are buying CNY500 million ($79 million) of stocks. Reignwood International Investment (Group) Co. is buying US$50 million.

Baosteel Resources International Co., a subsidiary of Chinese state-owned Baosteel Group Corp., will buy US$30 million of stocks, as will King Link Holding Ltd. Lion Fund will buy US$20 million of stocks, the term sheet showed.

Cornerstone investors, who are guaranteed large allotments in an initial public offering in exchange for agreeing to hold the shares for a minimum length of time, in this case for six months, give other investors confidence in a deal at a time of volatile markets.

The Inner Mongolia-based coal producer, which had originally planned to raise up to US$1.4 billion by selling 258.4 million H shares, now plans to sell 162.7 million H shares in an indicative price range of HK$43-HK$53 each, the term sheet showed. H shares refer to Chinese companies' Hong Kong-listed shares.

The bottom of the price range translates to 6.7 times 2012 forecast earnings, a person familiar with the situation said Wednesday.

In the event of strong demand for the IPO, bankers can raise the size of the deal by exercising an overallotment option worth 15% of the shares sold, raising up to US$1.28 billion in total.

Yitai Coal plans to use proceeds from the IPO to expand its railway transportation capacity, build coal mines, repay bank loans, and supplement working capital, according to the term sheet.

BOC International Holdings Ltd., China International Capital Corp., Bank of America Merrill Lynch, BNP Paribas SA, Macquarie Group Ltd., UBS AG, Credit Suisse Group, ICBC International Holdings Ltd, and China Merchants Securities (HK) Co. are handling the deal, according to a preliminary prospectus.

China Merchants Securities, one of the IPO managers, has agreed to buy unsold shares worth US$100 million if the deal is priced at the low end of the indicative range, with Yitai paying it back 5% of the "hard underwriting" commitment in the event of excess shares, Yitai said in its preliminary prospectus.

Underwriters generally pledge to take on unwanted shares but in Hong Kong, unless a deal is "hard underwritten," IPOs facing faltering demand are typically yanked.

Write to Prudence Ho at prudence.ho@dowjones.com

Copyright © 2012 Dow Jones Newswires

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