1 Talking Point 6 Week in 60 Seconds 7 Economy Week in China 8 Internet and Tech 9 Energy and Resources 10 Aviation 11 China and the World 12 Society and Culture 2 May 2014 17 And Finally Issue 235 18 The Back Page www.weekinchina.com Pork deal not crackling m o c . n i e t s p e a t i n e b . w w w Why did WH Group, the world’s biggest hog firm, pull its IPO? Brought to you by Week in China Talking Point 2 May 2014 Pork chopped Why did hog giant’s IPO fail to entice investors? Setback for pig tycoon: Wan Long’s WH Group IPO in Hong Kong has ended in failure uring the world’s biggest pro - mark and then to buy a majority Not bringing home the bacon… Dbate dispute a few years ago, a stake for HK$300 million ($38 mil - When WH applied to list on Hong fascinated audience learned that lion). Both proposals were rejected Kong’s stock exchange in January, Nina Wang, the late chairwoman of outright by Shuanghui’s chairman the firm talked up the prospect of Hong Kong real estate developer Wan Long (see WiC201 for a profile launching the city’s biggest IPO Chinachem, paid $270 million to of the man known locally as the since 2010. It kicked off the investor her feng shui adviser (and lover) to ‘Steve Jobs of Chinese butchery’). roadshow early last month intend - dig lucky holes. As many as 80 of His rationale was that he wanted to ing to raise up to $5.3 billion. Four them were dug around Wang’s “make full use of foreign capital, but fifths of the total was to be used to properties to improve her fortune. not be controlled by it”. Despite help WH repay loans taken to fi - One of these holes – about three never owning a majority stake in nance the Smithfield takeover, with metres wide and nine metres deep, the hog firm, he insisted on running bankers setting the price between according to the China Entrepre - the company his own way. HK$8 and HK$11.25 a share. This was neur magazine – was burrowed out - Two decades have passed since “an unusually wide indicative side a meat processing plant in Wan first courted Nina Wang’s cash range” according to Reuters, but also China. and in that time a range of new in - a recognition of the uncertain out - Why so? Chinachem was the first vestors have bought into the com - look in the Hong Kong stockmarket. foreign investor brought in by pany. Last year they helped A few weeks later, the 29 banks Shuanghui bosses in 1994 to help Shuanghui to acquire American hog hired to promote the IPO (a record) the abattoir expand. Wang’s capital producer Smithfield for $7.1 billion returned with lukewarm orders. would jumpstart the firm’s extraor - (including debt) and in January the WH was forced to cleave the offer by dinary transformation from a state- firm was renamed WH Group, more than half. Excluding the P h o t o owned factory in Henan’s Luohe ahead of a multi-billion dollar Hong greenshoe allotment, the new plan S o u r c city into China’s biggest (and pri - Kong listing. But embarrassingly was dramatically less ambitious, e : I m a vately-held) pork producer. the IPO was pulled this week, as and looked to raise between $1.34 g i n e C Seeing Shuanghui’s potential, plans for the flotation went belly- billion and $1.88 billion. To boost in - h i n a Wang offered to acquire its trade - up. vestor confidence, existing owners 1 In the future, finance will help new growth flourish. There are grounds for cautious optimism in the real economy — but creating sustainable growth always needs careful encouragement. New income streams should be built on opportunities that have longevity and new solutions prepared for technology that will continue to evolve. In this era of transparency, HSBC is working with clients to help create conditions in which businesses can flourish. By connecting the developed and the developing world, we can help you protect and cultivate real growth — and so create that success that lasts. There’s more on the future of finance at www.hsbcnet.com/growth HSBC operates in various jurisdictions through its affiliates, including, but not limited to, HSBC Bank plc who is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, The Hongkong and Shanghai Banking Corporation Limited, HSBC Securities (USA) Inc., member of NYSE, FINRA and SIPC, and HSBC Bank USA, NA. Issued by HSBC Holdings plc. AC22067 Week in China Talking Point 2 May 2014 also dropped plans to sell some of managers have needed more con - their own shares in the listing. WH’s vincing of the value of the newly trading debut was pushed back by a combined Shuanghui and Smith - week to May 8. field businesses. But investors remained unen - thused. Blaming “deteriorating So WH’s valuation was too high? market conditions and recent ex - Bloomberg said WH was prepared cessive market volatility” (the pref - to sell its shares towards the bot - ferred explanation for most failed tom of the marketed price range, IPOs), WH shelved its IPO on Tues - which equates to a valuation of 15 day. times estimated 2014 earnings. “The world’s largest pork com - At first glance that doesn’t look pany has gone from Easter ham to too demanding. Henan Shuanghui meagre spare rib,” the Wall Street Investment, the Chinese unit of WH Journal quipped. Group that is listed in Shenzhen, carries a market capitalisation of Were rough market conditions to Didn’t sizzle Rmb78 billion ($12.6 billion), or 20 blame? times its 2013 net profit. Hormel, a The failed deal was another blow for longer term goal was to improve Minnesota-based food firm that bankers in Hong Kong’s equity cap - the reputation of Chinese pork – produces Spam luncheon meat ital markets, who have watched the and boost confidence among the (and is a key competitor for WH’s planned IPO of Hutchison’s giant re - country’s jaded consumers – the American pork business) trades at a tail arm AS Watson slip away and more immediate business logic was price-to-earnings ratio of 23. have seen Alibaba Group opt to go to to sell Smithfield’s lower-cost meat Hence China Business Journal market in New York instead. into China, where prices at the pre - concludes that WH priced itself as Volatile markets may have con - mium end of the market are typi - “not too high and not too low” tributed to WH’s decision to post - cally higher. among peers, especially if the com - pone the listing. Hong Kong’s Hang “We plan to leverage our US pany can generate genuine syner - Seng index dropped 4.5% between brands, raw materials and technol - gies between its China operation the deal’s formal launch on April 10 ogy, our distribution and marketing and its newly acquired American and its eventual withdrawal on capabilities in China and our com - unit. April 29, according to the South bined strength in research and de - But an alternate view is that China Morning Post. Other IPOs velopment to expand our range of these synergies aren’t immediately haven’t been faring well recently. American-style premium packaged obvious and that the new business Japanese hotel operator Seibu Hold - meats products offerings in China,” model has hardly been tested (the ings and Chinese internet firm Sina the company said in its prospectus. Smithfield deal closed last Septem - Weibo both pared back share sales “We expect [this] to positively affect ber and exports to China didn’t start last month, while the Financial our turnover and profitability.” until the beginning of this year). Times notes that concerns about In recent months this strategy The criticism is that WH hasn’t done China’s slowing economy have de - has faced headwinds, with prices much more than put Shuanghui In - pressed interest in Chinese assets going – from the pork giant’s per - vestment and Smithfield together more generally. spective – in the wrong direction. into a holding vehicle, but is now Nevertheless, investors were anx - American pig farmers are strug - asking for a valuation greater than ious about WH’s investment story gling with a porcine virus that has the sum of the two parts. “Even at too and specifically whether the wiped out more than 10% of hog the bottom of the range, the IPO im - company’s valuation was too high. stocks. This has sent US pork to new plies a valuation for Smithfield 21% One of the selling points of the highs, meaning it’s no longer so above the price WH Group paid for original Shuanghui takeover of low-cost. In contrast, Xinhua notes the US pork producer barely eight Smithfield was that it married a that pork prices in many Chinese months ago,” notes Reuters Break - P h o t o reputable American brand with a cities have fallen to their lowest lev - ingviews. (And let’s not forget, S o u r company that wanted to adapt best els in five years. As such, the com - Smithfield was purchased at a 30% c e : R e practices in product quality and mercial case for exporting US pork premium to its market price at the u t e r s food safety in China.