China Tourism Group Duty Free's shares managed to stick to their issue price on their Hong Kong debut last week, but the unspectacular performance came far short of the boost bankers had hoped for to revive a lacklustre IPO market.
The shares in the Shanghai-listed duty-free shop operator, which raised HK$16.2bn (US$2.07bn) from Hong Kong’s largest listing this year, closed at HK$158 on Thursday, unchanged from the issue price.
The stock had opened down 24% at HK$120 due to what people familiar with the situation described as a technical glitch after the regular pre-opening session, which normally smoothes out price discovery, had been cancelled because of a typhoon. Only 100 shares were traded at HK$120 when trading on the exchange started at 1pm local time and the shares quickly rebounded.
About 6.7m shares in China Tourism changed hands during the day on turnover of HK$1.05bn.
Still, the flat debut was a better outcome than some analysts had expected. Shifara Samsudeen of LightStream Research, who publishes on research portal Smartkarma, has anticipated a weak start as she believed the shares were worth HK$130 amid the ongoing Covid-19 outbreak in China. In particular, the company conducted bookbuilding while surging Covid cases disrupted activity on the tourist island of Hainan, where it generates most of its revenue.
Arun George, an analyst at Global Equity Research who also publishes on Smartkarma, said China Tourism's valuation was unattractive as it offered a discount of only around 27% to the Shanghai-listed A-shares, compared with an average A/H discount of 46.6% for companies listed in both Hong Kong and mainland China.
“I won’t say it’s a very disappointing debut but we need something better than this to encourage investors to return to the Hong Kong IPO market,” said a banker away from the deal.
Including China Tourism, Hong Kong listings have raised a combined US$6.7bn so far this year, down around 81% year on year, according to Refinitiv data.
The US$1.5bn IPO of electric-vehicle maker Zhejiang Leapmotor Technology, the US$2bn float of property management company Onewo Space-Tech Service and the US$1.5bn listing of electric vehicle battery maker CALB are next in line, with Leapmotor planning to start pre-marketing this week.
Encourage others
Bankers on the China Tourism listing hope the deal’s success can encourage more issuers to come to the market.
“Market conditions have been volatile for much of this year, but the fundamental quality of China Tourism shone through. We secured strong interest from top-tier long-only investors, sovereign wealth funds, global strategic investors and more,” said Zili Guo, co-head of Asia equity capital markets at UBS.
The institutional book of China Tourism was 4.7 times covered with 140 investors participating, while the retail tranche was 1.06x subscribed.
“We hope this success will help encourage other issuers to conduct IPOs, and that China mainland and Hong Kong’s stock markets will enjoy a recovery over the coming six to 12 months,” Guo said.
“We were able to achieve one of the narrowest A to H share discounts among SOE companies. This bodes well for other aspiring quality Chinese issuers,” said Edwin Chen, head of China consumer, healthcare and real estate for global banking at UBS Securities.
CICC and UBS were the sponsors for the China Tourism deal, and joint global coordinators with CCB International, Citic Securities and Haitong International.