Summer deals lift HK IPO outlook
Bankers are hoping some high-profile transactions coming to Hong Kong this summer will turn sentiment around in the city's IPO market, where a spate of poor debuts has further dented investor interest.
While Asia is gradually showing some encouraging signs, with big IPOs in Indonesia and India making strong debuts, Hong Kong deals continue to disappoint.
Three Chinese companies started trading in the city last week and all saw their shares plummet on the first day. Shares in Beijing Luzhu Biotechnology lost half of their value in just two days after the company raised HK$341m (US$44m) from its IPO. The stock plunged 32.9% on its debut on Monday and a further 24.1% on Tuesday.
Easy Smart Group Holdings, a subcontractor specialising in fire protection works in Hong Kong, saw its shares dive 23.4% on debut on Tuesday before rebounding 30.6% the next day. On Thursday, shares in sales and marketing services provider Plus Group Holdings slid 24.6% on their first trading day.
Easy Smart and Plus raised HK$131m and HK$265m from their IPOs respectively.
The weak debuts followed a major setback for sentiment when ZJLD Group’s shares tumbled 17.9% on their first day on April 27, after the Chinese white liquor distiller raised HK$5.31bn from Hong Kong’s largest IPO this year. The stock closed at HK$8.67 on Thursday, 20% below the issue price.
“It’s really frustrating when nothing seems to be working. Deals supported by institutional investors didn’t work, even deals that got done with friends-and-family demand also failed,” said an ECM banker.
Hong Kong, which used to be one of the top three IPO fundraising venues in the world, registered just US$837m of IPO issuance in the first quarter from mostly sub-US$50m deals. Among the top 10 IPOs so far this year in terms of fundraising size, only two deals – Beauty Farm Medical and Health Industry and YH Entertainment Group – rewarded investors with a handsome profit on the first day (See table).
Summer hopes
Bankers are now pinning their hopes on some high-profile IPOs such as the spin-offs from Chinese e-commerce giant JD.com and logistics company Lalatech that are aiming to come to the market in late June or July.
Jingdong Property and Jingdong Industrials could each raise about US$700m–$1bn, while Lalatech is planning an IPO of about US$1bn.
“We need some deals to draw investors back to the IPO market and these are good candidates. Investors know JD well and are likely to take a look at the spin-offs while Lalatech has turned profitable, which probably gives investors more confidence in volatile markets,” said a banker away from the deals.
JD Property owns and manages logistics and business parks in China and Asia, while JD Industrials is an industrial technology e-commerce platform.
Lalatech, backed by Hillhouse and Sequoia Capital, posted an adjusted net profit of US$53.2m for 2022 compared with a loss of US$631m in 2021.
“We are doing soft pre-marketing and the feedback is positive so far. Some investors who have skipped smaller IPOs are keen to look at this one and are giving constructive feedback on valuation,” said a banker working on one of the deals.
A successful Hong Kong IPO will pave the way for some sizable floats further down the road, including Shenzhen-listed Chinese logistics giant SF Holding’s planned US$2bn–$3bn listing later this year. Logistics provider Cainiao, a unit under Alibaba Group Holding, is also planning a Hong Kong IPO that could value it at around US$20bn.
“Many issuers are keen to do IPOs as they need funds for expansion. There are a lot of dialogues going on and we are winning mandates,” said another ECM banker. “But if the Hong Kong IPO market continues to underperform, many of these deals will be pushed back to next year.”