Jumbo IPO A$5bn RDI float confirms HK’s resource credentials...

Jumbo IPO
A$5bn RDI float confirms HK’s resource credentials

Australia - Equities
9 August, 2008
A$5bn RDI float confirms HK’s resource credentials
Advanced studies into the feasibility of launching an A$5bn (US$4.5bn) Hong Kong listing of an Australian resources firm are underway. The IPO from Resource Development International (RDI) will be the largest overseas listing by an Australian resource company and the second significant dual listing of an ASX-listed firm in Hong Kong since Sino-Gold listed on the bourse in March 2007.

The jumbo IPO was flagged in a statement last week by the ASX-listed Australasian Resources, which it said it was entering into a merger implementation agreement with RDI.

RDI was recently formed to buy iron ore, nickel, exploration and energy interests, including rights to mine for an estimated 20bn tonnes of iron ore in Western Australia. It is seeking to buy these rights from a company called Mineralogy.

The company said it will complete the merger and the IPO by late 2008. Macquarie and UBS have been appointed to lead the float.

“Decisions like whether there will be a single primary listing in Hong Kong, a dual primary or a secondary listing in Australia are yet to be made,” said one banker. “The anticipation is that there will be a dual listing in Hong Kong and Australia.”

A dual listing would add diversity to the investor base. “Equity has come off sharply in recent months especially in Australia,” said one banker. “RDI is listing in Hong Kong to create another funding avenue.”

Aussie ECM has become somewhat of a graveyard over recent months. Few new deals are coming. Those that arrive are tanking.

Ivanhoe Australia, for instance, raised A$125m (US$120m) through an IPO, and dropped a whopping 22% on its August 6 debut. UBS was the sole bookrunner on the deal.

Ivanhoe in some ways is similar to RDI in that it has direct and indirect interests in underexplored land covering around 6,350 square kilometres in northwest Queensland. The company does not have any revenues or operating profit.

UBS managed to drag the transaction across the finish line primarily because big institutional investors were keen to support any venture led by Robert Friedland, the chairman of Ivanhoe. Friedland, founder and executive chairman of Ivanhoe Mines, has a long and successful track record in mining.

And that same strategy may be employed again on the RDI IPO. Clive Palmer, a billionaire who has a lot of connections in Hong Kong, is the majority shareholder of RDI. Palmer’s friends and supporters will likely support the float. Palmer is also well-connected in China, which can only help.

Palmer owns a 66.37% stake in Australasian Resources and has over 25 years’ experience in the mining industry. He is chairman and founder of Mineralogy, a private Australian company that has dealt with the Chinese government-controlled Citic Pacific.

Mineralogy holds one of the world's major iron ore deposits – estimated to exceed 160bn tonnes – in the Pilbara region of Western Australia.

Citic is developing an A$4bn project, funded by Chinese government-owned banks, to export 24m tonnes of iron ore annually from Western Australia. The project is expected to start output in early 2010. Citic Pacific owns 80% of the project and the rest is held by China Metallurgical, a state-owned metal producer.

The involvement of major Chinese companies in RDI’s business will entice Asian investors to the float. However, that fact alone does not explain RDI’s decision to list in Hong Kong.

The Asian equity market is fully oriented towards growth and investors are comfortable with taking high-risk bets for potentially high returns. Asian investors may well be induced to take a punt on a company with rights to one of the world’s largest iron ore bases.

The Australian market, by comparison, attracts a lot of superannuation funds, which are looking for sustained yield.

For that reason resource entities are increasingly eying Hong Kong’s base of growth-oriented investors, despite the fact that Australia has a far more established foundation of listed mining firms, along with armies of analysts and bankers who are expert in resources.

At least two overseas or non-China listings are expected in Hong Kong either later this year or early 2009 – one of them is a Russian resource company. The listings are coming in as the exchange is trying to rebrand itself as something more than a funding hub for China Inc, and as PRC dealflow and trading volumes are increasingly revolving around Shanghai.

Russian molybdenum miner SMR (Strikeforce Mining and Resources) has mandated Morgan Stanley and BOC International to arrange a US$300m Hong Kong IPO in the fourth quarter of this year. SMR produces all of Russia’s ferromolybdenum and about 6% of world supply of the metal.

Shankar Ramakrishnan