Chinese pork giant WH Group, which bought U.S. producer Smithfield Foods last year, is shelving its multibillion-dollar Hong Kong IPO as investor demand sags amid rocky financial markets, the company said Tuesday.
The decision to abandon the share offering complicates the company's efforts to pay off loans it took out to complete the takeover of Smithfield, a deal that turned it into a global butcher with the means to source cheap U.S. pork to feed rising demand in China.
"In light of deteriorating market conditions and recent excessive market volatility, the company, having consulted the joint sponsors, has decided that the global offering will not proceed at this time," it said in a brief statement posted on the Hong Kong stock exchange's website.
A company spokeswoman in Hong Kong declined to comment.
The Chinese company had initially planned to raise up to $5.3 billion in an initial public offering on Hong Kong's stock exchange. It changed its name from Shuanghui International Holdings after buying Smithfield, whose array of brands, including Armour, Farmland and its namesake, will appeal to Chinese consumers wary of domestic producers following a spate of food safety scandals, including one involving WH Group.
Most of the proceeds were intended to be used to pay off the debt from the Smithfield takeover, which was valued at $7.1 billion including debt. But news reports indicated that investors were lukewarm on the offering, forcing bankers to cut the size of the deal before scrapping it altogether.
WH Group Ltd.'s aborted attempt to list came as signs emerged of flagging investor interest in equities. Earlier this month Chinese social media company Weibo Corp. raised less money than expected when it went public in New York. Sentiment has been especially weak in Hong Kong, where the benchmark Hang Seng Index has fallen 3.2 percent this year.
The company, the world's biggest pork producer, described itself as a "vertically integrated global pork powerhouse" in its prospectus. The document outlined its grand plan to boost profits, chiefly by sourcing cheap, high quality hogs from the U.S., where porkconsumption is leveling off, to feed growing demand for pork in China, where rapid growth in the world's second biggest economy means millions more can afford to buy the staple meat.
Pork is China's favorite meat, and the country accounted for more than half of the 107 million metric tons of pork consumed globally in 2012, according to a research commissioned by the company.
Hog prices from 2010 to 2012 were 40 percent cheaper in the U.S. than China because of higher farm productivity, the company said. Grain used for hog feed was also cheaper in the U.S. than China, where it costs 50 percent more.
But those plans have been thrown into doubt following the spread of porcine epidemic diarrhea virus, which officials say has killed millions of U.S. pigs since last year and pushed up pork and bacon prices. At the same time, Chinese pork prices have fallen to their lowest in years because of oversupply.