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Monday, 22 January 2018

Asia-Pacific IPO: ZhongAn Online P&C Insurance’s HK$13.7bn IPO

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Raising the bar

ZhongAn Online P&C Insurance, China’s first online-only insurer, redrew the boundaries of the Hong Kong equity market with a hugely popular listing that kicked off a wave of hot deals from the technology sector.

The HK$13.7bn (US$1.76bn) IPO engaged institutional and retail investors, and the stock soared after its listing, underlining Hong Kong’s competitive advantage over the US in delivering high valuations for the latest crop of new-economy listings.

None of the underwriters could have expected the deal – the first large-cap China financial technology listing in Hong Kong and the largest China fintech IPO ever – would be such a blowout.

The company was targeting an aggressive valuation, but had yet to translate its rapid growth into rising profitability.

ZhongAn targeted a valuation of US$11bn, some 46% more than a June 2015 pre-IPO financing that valued the company at about US$7.5bn. However, there was doubt over whether the company’s growth justified the high valuation. Its net profit tumbled by 79% to Rmb9.37m (US$1.4m) in 2016 from Rmb44m in 2015 due to weakness in China’s capital markets. Net profit was Rmb37m in 2014.

The company’s strong shareholder background meant investors were at least willing to look at the transaction. Ant Financial owns a 16% stake in ZhongAn, while Tencent and Ping An Insurance each hold 12.1%.

However, convincing investors to accept the aggressive valuation was challenging. The turning point came when ZhongAn scored a coup by bringing in SoftBank Vision Fund as a cornerstone investor for around a third of the float. The US$550m investment, Softbank’s first cornerstone investment in a Hong Kong IPO, gave investors a huge confidence boost.

The deal was quickly covered multiple times across the HK$53.70–$59.70 per share range and momentum continued to build. In the end, the 199m H-share float was priced at the top, achieving the issuer’s valuation target of US$11bn. About 500 investors left the institutional book more than 30 times covered, while the retail tranche ended up 393 times covered with orders from about 120,000 individual investors.

ZhongAn made a solid debut on September 28 with a 9.2% gain. The stock continued to climb and reached a record high of HK$97.80 on October 9, or 64% above the IPO price. It closed the review period at HK$76.30, leaving investors comfortably in the money.

The impact of the IPO was especially important for Hong Kong. Riding on ZhongAn’s outstanding performance, Tencent-backed China Literature raised HK$9.6bn and went on to double on its first day of trading. Chinese online car-trading platform Yixin Group also raised HK$6.8bn from a Hong Kong float in November.

Credit Suisse, CMB International, JP Morgan and UBS were the joint sponsors and joint global coordinators on ZhongAn’s IPO. They were also joint bookrunners with ABC International, BOC International, CICC, ICBC International, Morgan Stanley and Ping An of China Securities.

To see the digital version of this review, please click here.

To purchase printed copies or a PDF of this review, please email gloria.balbastro@tr.com.

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