HONG KONG, June 11 (Reuters) - China Youran Dairy Group
raised $643 million in its Hong Kong initial public
offering (IPO) by pricing its shares at the bottom of an
indicated price range at HK$6.98 each, according to two sources
with direct knowledge of the matter.
China Youran did not respond to a request for comment. The
sources could not be named as the information was not yet
The company had flagged its shares would be priced between
$HK6.98 to $HK8.66 each, according to regulatory filings when
the deal launched on Monday.
At the top of that range, Youran would have raised $800m.
The demand from investors was weaker than anticipated
because the dairy industry was not seen as a hot sector,
according to one source with direct knowledge of the matter who
did not have permission to speak to media.
Investors were also concerned about the risk of a potential
stock overhang that could be created if $460 million worth of
convertible notes issued in November to pre-IPO investors are
swapped into shares over the next two years.
Those investors were led by PAG, Bain Capital, Bank of China
and Industrial and Commercial Bank of China
, according to Youran's prospectus.
"Hard to pitch to investors in Youran knowing that down the
road there will be another chunk of shares coming up," said Toh
Zhen Zhou, analyst at Aequitas Securities, who publishes on the
"So even if I really liked the company and valuation was
reasonable, I would scale back your position in the IPO
bookbuild. The book runners are obviously aware of this, hence
the bottom-end pricing to entice investors."
China Youran, backed by private equity firm PAG, was spun
off from Inner Mongolia Yili Industrial Group.
China is the world's third-largest milk producer, but last
year's 34 million tonnes of output only met about 70% of
Youran Dairy shares will start trading on the Hong Kong
Stock Exchange next Friday.
($1=1.3912 New Zealand dollars)
(Reporting by Scott Murdoch in Hong Kong; additional reporting
Sophie Yu in Beijing; Editing by and Stephen Coates)