This little piggy isn’t going to the market after all.
WH Group has scrapped its Hong Kong listing after investors turned their noses up at its valuation. The Chinese pork producer had already more than halved the size of the fund-raising to as little as $1.3 billion. A delay that gives the company formerly known as Shuanghui more time to integrate its American subsidiary Smithfield is probably the least bad outcome.
WH Group’s private equity backers were so greedy that even its 29 investment banks couldn’t sell the cut-size offer. At the bottom of the range, the initial public offering  implied a valuation for Smithfield 21 percent above the price WH Group paid for the company barely eight months ago, according to an analysis by Reuters Breakingviews.
Such blatant fattening up rankled with investors, who also objected to large share awards to two senior executives. Though WH Group scaled back the size of the offering, it didn’t cut the price - a step made more difficult by Hong Kong’s listing rules.
The current owners had promised not to sell any shares in the cut-size I.P.O. Pushing ahead would have left investors worrying about a stock overhang in the hands of Chinese private equity firms CDH Investments and New Horizon, which own a combined 40.5 percent of the company. The risk was that WH Group would suffer the same fate as Huishan Dairy. Shares in the Chinese farm operator are trading 38 percent below the offer price for its $1.3 billion fundraising last September.
Delaying the offering gives WH Group time to further integrate Smithfield and prove that it is worth a full-fat valuation. The company reckons it can benefit by selling more low-cost  pork to Chinese consumers. Investors will want to see more evidence that is the case. The problem with the delay, however, is that WH Group will now carry its net debt of more than $7 billion for longer. The earliest it could try to go public again would probably be in September.
The pulled pork I.P.O. is embarrassing for all concerned. But faced with an unappetizing deal or a canceled one, WH Group chose the least bad option.
Una Galani is the Asia corporate finance columnist for Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.
