A successful stock sale and debut has the potential to bolster investor confidence following a year-long slump that has seen issuance plunge amid China’s economic and regulatory struggles. — Bloomberg
Hong Kong: Hong Kong’s biggest listing in more than three years presents a major test for the city’s struggling market for initial public offerings (IPOs).
A successful stock sale and debut has the potential to bolster investor confidence following a year-long slump that has seen issuance plunge amid China’s economic and regulatory struggles.
Hong Kong’s listings have raised just US$2.5bil year-to-date, data compiled by Bloomberg show. In 2021, the figure was US$42.8bil.
Midea Group Co, a Chinese maker of household appliances, started taking orders this week for a second listing in Hong Kong that may raise as much as US$3.5bil and be the city’s biggest since JD Logistics Inc raised US$3.6bil in May 2021.
At the top end of the marketed price range, Midea is offering a roughly 20% valuation discount to its stock listed in Shenzhen, at a time when Chinese consumer confidence has been dented by a property crisis and disappointing corporate earnings growth.
“The major challenge, besides the macroeconomic issues, is that there are not that many new exciting Chinese companies in the pipeline anymore,” said Barry Wang, co-portfolio manager of the China Opportunities Fund at Oberweis Asset Management HK Ltd.
Hong Kong’s IPO market has been in a slump for more than two years now, after the Chinese government cracked down on home-grown technology giants and the ill-fated US listing of ride-hailing company Didi Global Inc weighed on Chinese debuts worldwide.
On average, debutants have booked a 2.1% gain on their first day of trading this year, though those with proceeds larger than US$100mil have seen a 1.4% decline.
Bubble-tea maker Sichuan Baicha Baidao Industrial Co plunged 27% on its debut in April after its IPO raised US$330mil.
The city’s IPO woes have captured China’s attention.
In June, Beijing pledged to step up support for IPOs outside of the mainland, which was seen as a potential boon for the market in Hong Kong.
There are signs that Midea’s IPO might help turn things around. Order books were covered on the first day and are now multiple times covered.
Alternative asset manager Hillhouse Investment have been in talks to place an order for more than US$1bil of stock and Singapore sovereign wealth fund GIC Pte was weighing subscribing for about US$500mil in the offering, according to people familiar with the matter.
Last month, Midea reported a first-half net income of 20.8 billion yuan or about US$2.9bil, beating the consensus estimate of 18.97 billion yuan.
Citigroup Inc said the firm’s focus on growing overseas sales means it’s less exposed to the uncertainties of China’s macro environment. — Bloomberg
