Sinotrans Shipping Ltd. may raise as much as HK$11.45 billion ($1.5 billion) from a Hong Kong initial public offering that has drawn U.S. hedge fund Citadel Investment Group LLC, said three people familiar with the sale.
Sinotrans Shipping plans to offer investors 1.4 billion new shares at HK$7.18 to HK$8.18 each, said three people familiar with the sale, who declined to be identified before an official statement. The sale may be expanded by another 15 percent to meet demand and stabilize the share price,
The sale of a 35 percent stake during the IPO values the Hong Kong dry bulk unit of China National Foreign Trade Transportation (Group) Corp., also known as Sinotrans Group, at as much as $4.2 billion, the people said.
Four-year-old Sinotrans Shipping is expanding to meet increasing demand to transport dry-bulk cargo -- such as iron ore, coal, grain and steel -- along global trade routes, and to carry crude oil from Middle East to the Asia-Pacific region, especially China, said an Oct. 26 report by Daiwa Institute of Research ltd.
China's economy grew 11.5 percent in the third quarter, increasing its thirst for raw materials and commodities and helping sustain global demand.
Share Sale Arrangers
BOC International Holdings Ltd. and UBS AG are arranging Sinotrans's share sale.
Julian Lee, a Hong Kong-based external spokesman hired by Sinotrans Shipping, declined to comment. So did spokespeople for the two investment banks.
Sinotrans Shipping derived more than 75 percent of its revenue from chartering out the dry-bulk vessels it owns to shipping companies such as Rizzo-Bottiglieri-De Carlini Armatori SpA, STX Pan Ocean Co., and Transfield Shipping Inc., Daiwa said.
It is using about 80 percent of the share sale proceeds to expand its fleet size and buy shipping companies, said the people. It plans to increase the capacity of its dry-bulk fleet by nearly fourfold, more than double those of its oil tankers and container ships over the next five years, Daiwa said.
Sinotrans is already one of China's largest shipping companies with the 26 dry-bulk vessels it owned by the end of June. It also has three oil tankers and five container ships.
It has ordered 13 more ships, which are expected to be delivered by 2010, including eight dry-bulk vessels, four container ships and one crude oil carrier, said Daiwa's report.
Largest Shipping IPO
Its IPO, if priced at the top end, would be the largest Chinese shipping IPO since at least 1999 and the second-largest public stock sale by a Chinese shipping company in the same period, after China Cosco Holdings Co.'s $2 billion Shanghai offering in June, according to data compiled by Bloomberg.
The high end of the IPO price range values Sinotrans Shipping at about 14 times its 2008 earnings as estimated by the investment banks arranging the sale, the people said. China Shipping Development Co., the nation's largest oil carrier, trades at about 16 times next year's projected profit, according to Bloomberg data.
Sinotrans Shipping reserved $175 million worth of IPO shares for seven corporate investors, including U.S. hedge fund Citadel, and companies controlled by China Merchants Group Ltd., Hong Kong tycoons Li Ka-shing and Lee Shau-kee, and Ping An Insurance (Group) Co., they said.
The dry-bulk ships in Sinotrans Shipping's fleet average 8.6 years in age, compared with the global average of 15.2 years, Daiwa said in the report. The young fleet keeps the company's repair, maintenance, fuel and insurance costs low, it said.
It also means new ships delivered will add to its capacity rather than serve as replacements for old ships, it added.