Shenzhen-listed Contemporary Amperex Technology made a stellar debut in its Hong Kong listing last week, breaking the usual rule that Chinese companies' H-shares trade at a discount to their A-shares.
CATL’s H-shares closed at HK$306.20 on Tuesday on their first day of trading in Hong Kong, 16.4% above the issue price of HK$263 and a 7.4% premium to the A-share close of Rmb263 (HK$285.15).
The strong debut allowed the world's largest maker of electric batteries to fully exercise the greenshoe for its Hong Kong follow-on on the same day, taking the fundraising size to HK$41bn (US$5.2bn) – the world’s largest listing this year.
The deal is also Hong Kong’s largest listing since Chinese short-video app company Kuaishou Technology’s HK$48.3bn IPO in February 2021.
The stock continued to rise on Wednesday, gaining 10.2% to HK$337.40, with the premium to its A-shares widening to 13%.
According to bankers close to the deal, CATL’s H-shares traded above the A-shares as investors who were not allocated as many shares as they wanted continued to buy in the aftermarket.
“Allocations were very concentrated. Many institutional investors were only given a small portion of the shares they wanted and we saw some of them buy in the market today. We believe retail investors also did the same,” said one of the bankers on Tuesday.
CATL sold just 3.4% of its enlarged share capital in the Hong Kong listing. Institutional books were more than 15 times covered with 428 investors participating. The top 25 investors took around 70%.
Twenty-one cornerstone investors took about 50% of the deal and are subject to a six-month lockup.
CATL sold 7.5% of the deal to retail investors and that tranche was 151 times subscribed.
“With such a small free-float, it’s not surprising to see the H-shares surge when investors piled in to buy,” said another banker on the deal.
Even CATL itself warned investors about the concentration of shareholdings when it announced allocations on Monday.
“In view of high concentration of shareholding in a small number of shareholders, shareholders and prospective investors should be aware that the price of the H-shares could move substantially even with a small number of H-shares traded and should exercise extreme caution when dealing in the H-shares,” it said.
Bankers said some investors may have sold their A-shares and switched to H-shares instead.
“Holding H-shares gives them more flexibility in trading in the future,” said a third banker.
Chinese regulators have imposed a number of restrictions on major shareholders, defined as those holding more than 5% of an A-share listed company, when selling their shares.
For instance, those shareholders are required to disclose their intention to sell at least 15 days in advance. They are also not allowed to sell shares if the share price falls below the company's net asset value per share.
Reasonable valuation
Despite the strong gain after listing, analysts reckon CATL’s valuation is still reasonable.
“CATL’s metrics do not appear too out of whack with peers,” wrote David Blennerhassett, an analyst at Quiddity Advisors who publishes on research portal Smartkarma.
He said CATL’s 2025 top line is forecast to grow by 23% compared with around 28% for peers including Chinese electric vehicle maker BYD and South Korean battery company LG Energy Solution.
Analysts at Huatai Financial also said CATL's post-listing valuation should align with global standards, potentially narrowing lithium-ion battery asset-valuation gaps at home and abroad.
The brokerage values CATL at a forecast 2025 P/E multiple of 23.25 for a target price of Rmb341.24.
CATL’s shares traded at a forecast 2025 P/E of 21.2 on Thursday while BYD was at 23.6, LG Energy Solution was at 122.7 and CALB Group was at 18, according to LSEG data.
BYD’s H-shares have also been trading mostly at a premium to its A-shares in recent months. Its H-shares closed at HK$462.60 on Wednesday, 6.3% above its A-shares.
Boost of confidence
CATL’s Hong Kong listing has crowned the city as the world's top fundraising venue. According to LSEG data, Hong Kong has raised US$7.7bn from IPOs and secondary listings this year, passing Nasdaq's US$6.9bn and the New York Stock Exchange's US$5.3bn.
The deal has also boosted the confidence of investors and potential issuers in the city’s IPO market.
CATL attracted a range of investors from 15 countries and regions, including sovereign wealth funds, industrial capital, long-term institutions, insurance capital and multi-strategy funds, according to the issuer.
“Improved sentiment in the secondary markets, together with a strong CATL debut, has indeed encouraged more investors to look at Hong Kong IPOs,” said a banker away from the deal.
“Apart from big deals, we started seeing investors show interest in smaller IPOs, which is a good sign for a broader recovery,” said the banker.
Against this backdrop, pan-Asian insurer FWD Group, controlled by Hong Kong billionaire Richard Li, filed again on Monday for a Hong Kong IPO – its fourth filing since February 2022.
“The deal should be able to get done this time around if markets continue to hold up,” said a person familiar with the situation.
Bank of America, CICC, China Securities International and JP Morgan were sponsors on the CATL deal. They were also overall coordinators, joint global coordinators and joint bookrunners with Goldman Sachs, Morgan Stanley and UBS. BNP Paribas and Guotai Junan International were joint global coordinators and joint bookrunners.