Asset management firm Carlyle Group LP, hedge fund firm Farallon Investors and China Cinda have agreed to buy $45 million in shares in Fu Shou Yuan International Group Ltd as China's largest provider of death-care services seeks up to $215 million in a Hong Kong IPO launched Monday.
Carlyle, whose co-founder William Conway visited Fu Shou Yuan's main cemetery in Shanghai last year, agreed to buy $25 million worth of shares, with San Francisco-based Farallon putting up another $10 million, according to the IPO prospectus unveiled Monday.
China Cinda Asset Management Co Ltd, the country's largest bad debt manager, will invest a total of $10 million through two separate subsidiaries. The group of so-called cornerstone investors receive a guaranteed allocation in exchange for agreeing to retain their stakes for a set period.
Fu Shou Yuan is offering 500 million new shares in an indicative range of HK$2.88-HK$3.33 ($0.37-$0.43) each, according to a term sheet of the IPO.
The IPO is set to price on Thursday, with a debut on the Hong Kong Stock Exchange slated for December 19.
The investors are looking to benefit from growth in an industry forecast to reach nearly 100 billion yuan ($16.4 billion) by 2017 from an estimated 53 billion yuan in 2013, according to market researcher Euromonitor.
That's equivalent to annual average growth of 17 percent.
Burial services, which include tomb sales that have no price controls, are the fastest growing and biggest segment of the industry, expected to rise 17.9 percent a year through 2017.
At Fu Shou Yuan's Shanghai cemetery, for example, a six-by-six meter plot can cost as much as 500,000 yuan ($82,350) at the top end, including the tombstone and other services.
Funeral services, which include ceremonies and body handling, are expected to expand 16.9 percent a year through 2017.
The boom in services should benefit from the increase in China's elderly population and the number of deaths in the coming years, the company said.
The number of deaths is forecast to rise to 10.4 million a year in 2017 from 9.7 million in 2012, as the number of people over the age of 65 grows to 14.4 percent of the population from 11.1 percent, Euromonitor estimates.
Fu Shou Yuan posted 118.14 million yuan of profit in the first half, up 72 percent from a year earlier, while revenue grew 32 percent to 306.7 million yuan over the same period.
Citigroup Inc is the sole sponsor and global coordinator of the offer, the term sheet showed, with CIMB and UBS also helping to underwrite the deal.