Sweeper faster than speed­ing bul­let train

Main­land ini­tial pub­lic of­fer­ings are get­ting shunted to the side­lines in­Hong Kong, long a pre­ferred list­ing des­ti­na­tion for Chi­nese com­pa­nies, Emma Dai re­ports

China Daily (Canada) - - BUSINESS -

It seemed like just an­other day on Hong Kong’s stock mar­ket. At about 9:30 am, trad­ing kicked off in a whirl. But on May 22, the re­sults of two ini­tial pub­lic of­fer­ings con­founded ex­pec­ta­tions.

Two chair­men of two com­pa­nies posed for pho­tos. One was Cui Dian­guo of China CNR Corp Ltd, the na­tion’s top high­speed train builder and the world’s largest elec­tric lo­co­mo­tive sup­plier. The other was Ng Wing-hong of Baguio Green Group Ltd, a Hong Kong com­pany that han­dles the mun­dane busi­ness of keep­ing the streets, wet mar­kets and air­port clean in the spe­cial ad­min­is­tra­tive re­gion.

No­body ex­pected the road sweep­ers to out­pace the bul­let trains, but that’s just what hap­pened. Upon list­ing, only 65 per­cent of the shares of CNR’s Hong Kong pub­lic of­fer­ing were taken up, and they were priced at HK$5.17 (67 US cents), the lower end of the mar­ket­ing range.

But Baguio Green’s Hong Kong of­fer­ing was over­sub­scribed by 429 times, and its shares were priced at HK$1.20, the very top of the range.

CNR’s case isn’t unique. Many com­pa­nies from the Chi­nese main­land, even those con­fi­dent enough to launch huge IPOs, have got­ten the cold shoul­der in Hong Kong.

On April 29, He­nan-based WH Group Ltd, the world’s largest pork pro­ducer, post­poned its $5.3 bil­lion de­but in Hong Kong even af­ter cut­ting the of­fer size by twothirds. De­mand was so weak that an un­der­writ­ing team of 29 banks couldn’t sell the shares.

In­March, Harbin Bank Co Ltd set out to raise more than HK$10 bil­lion. It ended up with just HK$8.77 bil­lion, pric­ing the is­sue at the lower end of the range. The Hong Kong tranche of the is­sue was un­der­sub­scribed, so 219 mil­lion shares were al­lo­cated to in­ter­na­tional buy­ers.

“It has been in­creas­ingly tough to sell new list­ings in Hong Kong, es­pe­cially the big ones,” said Kevin Le­ung, di­rec­tor and strate­gist at Haitong In­ter­na­tional Re­search Ltd. “More and more long-onlys — tra­di­tion­ally big play­ers in IPO sub­scrip­tions — are no longer keen to par­tic­i­pate.

“IPOs per­formed badly in the past two years. A sig­nif­i­cant num­ber of them have been trad­ing be­low their is­sue prices,” Le­ung said.

It has been in­creas­ingly tough to sell new list­ings in Hong Kong, es­pe­cially the big ones.” KEVIN LE­UNG DI­REC­TOR, HAITONG IN­TER­NA­TIONAL RE­SEARCH LTD

“Buy­ing them has cost in­sti­tu­tional in­vestors a for­tune, let alone re­tail in­vestors. In gen­eral, Hong Kong people are skep­ti­cal.”

Big IPOs start with cor­ner­stone in­vestors. That in­volves a lockup pe­riod dur­ing which they can’t sell any of their shares. How­ever, Le­ung said, ma­jor in­sti­tu­tional in­vestors such as so­cial se­cu­rity funds and sov­er­eign wealth funds have be­come re­luc­tant to ac­cept lock­ups for fear of los­ing money if IPOs per­form badly.

“With­out se­cur­ing these in­vestors, it’s even harder to launch large of­fer­ings,” he said. WH Group was will­ing to list with­out cor­ner­stone in­vestors, a rar­ity in Hong Kong.

Le­ung added that big names are of­ten too proud to price their shares cheaply.

“Some­times their val­u­a­tions are even higher than their listed peers. It might be le­git­i­mate, as these com­pa­nies are in­dus­trial lead­ers. But the ag­gres­sive ap­proach is not nec­es­sar­ily pop­u­lar among in­vestors. People used to think they could only get shares at the list­ing price or not at all. Nowthey be­lieve the shares will de­cline sooner or later, so why worry?”

Mar­ket sen­ti­ment isn’t help­ing, said Law Ka-chung, chief econ­o­mist and strate­gist at Bank of Com­mu­ni­ca­tions In­ter­na­tional Trust & In­vest­ment Co. “IPO ac­tiv­ity re­flects the over­all per­for­mance of the stock mar­ket. Right now, many have neg­a­tive ex­pec­ta­tions.”

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