CDH, Goldman pull $1.9bn WH Group IPO

The Chinese pork giant has cancelled its Hong Kong listing due to 'excessive market volatility'.

Chinese pork producer WH Group, formerly Shuanghui International, has decided not to proceed with its Hong Kong initial public offering citing “deteriorating  market conditions and recent excessive market volatility” as its reasons for cancelling the listing, according to a statement on the Hong Kong Stock Exchange website.

The listing proposal, filed with the HKEx in mid-April, said the company planned to raise as much as HK$41 billion ($5.3 billion; €3.8 billion) in the IPO, which was expected to be one of the largest this year. However, due to lacklustre investor interest, the figure had since reportedly dropped to as little as $1.3 billion.

The listing would have provided an exit for private equity backers CDH Investments and Goldman Sachs, who had previously supported WH Group’s $4.9 billion acquisition of US pork maker Smithfield Foods last year.

But despite lowering the number, media widely reported that the 29 investment banks involved in process couldn’t sell the offering due to the lack of investor interest.

The slow demand in Hong Kong indicates investor sentiment has diminished since late last year when a slew of companies listed in the special administrative region.

China Cinda, China Everbright and Fu Shou Yuan were included among the private equity-backed IPOs completed in Hong Kong during December – an uptick in activity that was expected to continue into 2014.

“There is hope that going into 2014, we will see a more consistent pipeline of successful deals than we have in the last two years,” Paul Boltz, partner at Ropes & Gray, explained earlier.

“The obvious knock on effect would be that it is going to be a lot easier for private equity firms to start monetising their investments and having some exits here. The window has really been closed for a while now, there haven’t been that many IPOs [in Hong Kong] until recently,” he added.

However, the market appears to have slowed, with WH Group's decision also prompting questions over whether the increasingly popular private equity-backed public-to-private transactions involving US-listed Chinese assets, with a view to re-list them on Asian stock exchanges, is a feasible strategy, Peter Fuhrman, founder of advisory firm China First Capital, believes.

“The WH Group IPO failure is also a stunning rebuke for the other PE-backed P2P take private deals now waiting to relist in Hong Kong. Smithfield, while no great shakes, is the jewel among the rather sorry group of mainly-Chinese companies taken private from the US stock exchange with the plan to sell them later to Hong Kong-based investors via an IPO,” Fuhrman wrote in his blog today.

He has previously taken issue with the lack of due diligence private equity firms are able to do on these US-listed assets, which are often undervalued due to investor sentiment toward Chinese businesses, many of which had been exposed for fraudulent activities.

However, firms involved in these transactions have previously defended the strategy, adding that they have had relationships with the founders of the businesses for many years.

Examples include the $3.7 billion Focus Media take-private by the likes of The Carlyle Group and FountainVest in December 2012, The Blackstone Group’s $625 million investment in Pactera and CITIC Capital Partners $890 million buyout of AsiaInfo-Linkage last year. 

A spokeswoman at Goldman Sachs declined to comment on the matter, while CDH could not be reached for comment by press time.