China’s WH Group (萬洲國際), which became the world’s biggest pork company after buying Smithfield Foods of the US last year, said on Monday it plans to raise up to US$5.3 billion in an initial public offering (IPO) on the Hong Kong Stock Exchange.
Most of the money will be used to pay off the debt used to buy Smithfield. The acquisition turned the Chinese company into a global butcher with the ability to source cheaper hogs from the US to better supply rapidly growing demand for pork in China, the world’s second-largest economy.
“WH Group’s listing on the Hong Kong Stock Exchange is in line with our stature as the world’s largest pork company, with an increasingly global reach,” chief executive officer Wan Long (萬龍) said in a statement.
China is expected to account for four-fifths of the growth in global pork consumption in the next five years, according to a Frost & Sullivan research report the company commissioned. Consumption in the US and other Western markets, meanwhile, is leveling off.
The company bought Smithfield Foods Inc less than a year ago for US$4.7 billion in cash.
WH Group, which changed its name from Shuanghui International Holdings (雙匯國際) after acquiring Smithfield, is the dominant pork producer in China, which accounted for more than half of the 107 million tonnes of pork consumed globally in 2012.
The takeover of Smithfield, which including debt was worth about US$7.1 billion, was the largest acquisition of by a Chinese company of a US firm.
It followed a number of high profile food safety scandals in China, including one that involved WH Group, that have made Chinese vigilant about food quality.
Pork is the staple meat in China, but numbers indicate there is still a lot more that can be sold, as rising Chinese incomes mean many millions more can afford to eat meat.
In 2012, China’s per capita pork consumption was about 40kg, compared with 79kg in Hong Kong, according to the Frost & Sullivan report. Chinese ate less than half the amount of meat overall that Americans did per year.
WH Group said it is selling 3.65 million shares priced at between HK$8 and HK$11.25.
That would raise from HK$29 billion to HK$42 billion (US$4.1 billion to US$5.3 billion) for WH Group.
If demand is strong enough, there is an option to increase the IPO shares by 20 percent, allowing the company to raise up to US$6.4 billion. The IPO’s pricing will be set on Tuesday next week. The shares start trading April 30.