Owner's talk of connections fails to line up investors for $3.6b offering
HONG KONG / SYDNEY - Australian billionaire Clive Palmer's much-touted ties with China weren't enough to persuade investors in Hong Kong to put up $3.6 billion for shares in his unprofitable iron ore and coal company Resourcehouse Ltd.
Resourcehouse dropped its fourth attempt in two years at an initial public offering in the city on Saturday, citing negative global market conditions. The axing came after the company cut the price as much as 30 percent the day before.
Palmer, who says he's been to China more than 50 times, marketed the float around his ties to China and Asia's demand for the raw materials he plans to mine. Glencore International PLC, the world's largest commodities trader that listed in Hong Kong last month, had to scale back investors' share requests because the offer was oversubscribed.
"It is a blow to his reputation," said Cameron Peacock, a market analyst at IG Markets in Melbourne. "He's always talking about how strong his relations are with Asia and China. It is going to leave some people wondering 'are the depths of your relationships as strong as you've made them out to be?'"
Hong Kong IPOs have raised at least $8.9 billion so far this year, up 55 percent from a year earlier, according to data compiled by Bloomberg.
The number of basic-material companies worldwide conducting IPOs has risen by 32 percent. They've raised $17.3 billion so far this year, up 77 percent on last year, led by Glencore.
Glencore, which has a 34 percent stake in mining company Xstrata Plc, grew its profit nearly fourfold since 2008 and last year had net income of $3.8 billion, according to data compiled by Bloomberg.
It may report 2011 net income of $7.3 billion, according to Nomura International PLC.
Clive Palmer,chairman of Resourcehouse Ltd
In contrast, Brisbane, Australia-based Resourcehouse, said in its prospectus that it won't turn a profit until output begins at its coal and iron ore projects in 2014 or 2015.
"Glencore is a fantastic business and it has been well - managed and it will do well over the medium to longer term," according to Gavin Wendt, a senior resource analyst at Mine Life Ltd in Sydney. "With Resourcehouse, the constant 'will they, won't they?' and the withdrawing of the issue just does nothing for their market credibility."
The pulling of the IPO follows iron ore prices falling 11 percent from their peak in China this year and a plunge on global stock markets.
Commodities prices have fallen 8 percent from this year's high on April 8, according to the Standard & Poor's GSCI Spot Index of 24 raw materials.
Palmer, who ran full-page color ads in Hong Kong's English- and Chinese-language papers for the share sale, stressed his connections when marketing the IPO of the company.
"I've had a business relationship with China going back to the 1960s and I'm fed up with seeing them treated very poorly worldwide," Palmer, a 57-year-old law school dropout who made his fortune in real estate, said to reporters last week in Hong Kong.
The company may launch the share sale again when market conditions improve, Palmer said from Hong Kong on Sunday.
Resourcehouse wants to develop an iron ore mine in Western Australia that will cost at least A$2.7 billion ($2.9 billion) and an $8.6 billion coal mine in Queensland state.
Mineralogy Pty and Waratah Coal Inc, both owned by Palmer, remain the owners of the mines and Resourcehouse only has an agreement to extract specific quantities.
"If they are floating high-quality assets then even in this sort of market there should be takers for the IPO," Wendt said.
"The whole thing seems to have been conducted with very poor planning and you just wonder whether Clive wielded too much power and he was the one making these ad-hoc decisions."
Resourcehouse's main assets are the rights to mine 1.4 billion tons of coal and 10 billion tons of iron ore.
The two commodities are used to make steel.
China's demand for the metal may rise by as much as a quarter by 2015 from last year, according to the China Iron & Steel Association, which represents producers.
