Hong Kong Equity Issue: China Tourism Group Duty Free’s HK$18.4bn Hong Kong listing

IFR Asia Awards 2022
2 min read
Fiona Lau

Market reopening

A HK$18.4bn (US$2.34bn) listing of China Tourism Group Duty Free injected new life into the lacklustre Hong Kong IPO market, spurring a rush of activity.

The market was severely hit by factors like China’s sharp economic slowdown due to Covid lockdowns, rising interest rates and inflation worries, and volume fell to a decade low in 2022.

IPOs, including secondary listings, in Hong Kong raised a combined US$12.7bn in 2022, down 70.5% from 2021, according to Refinitiv data.

Despite the challenges, China Tourism achieved the largest Hong Kong listing in 2022.

While Shanghai-listed China Tourism is a play on the normalisation of domestic travel, the deal came at a time when large parts of Hainan province, where the duty-free shop operator makes most of its revenue, were locked down to control a Covid-19 surge.

The negativity did not stop China Tourism from pushing the deal ahead in August, a time when investors are usually on holiday. The issuer and its Hong Kong listing sponsors CICC and UBS were confident that investors would welcome a chance to buy at a low entry point.

Nine cornerstone investors, including China State-owned Enterprise Mixed Ownership Reform Fund and South Korean cosmetics company Amorepacific Group, agreed to a six-month lock-up to secure allocations of a combined US$795m.

Global long-only investors, sovereign wealth funds and hedge funds also flocked to the transaction, leaving the institutional book 4.7 times covered and the retail tranche 1.06 times subscribed.

The strong response allowed China Tourism to price the offer of 102.8m primary shares, or 5% of the enlarged share capital, in the upper half of the HK$143.50–$165.50 price range at HK$158 per share, representing a discount of 27.5% to its A-share pre-deal close of Rmb188.62 (HK$217.81).

China Tourism’s shares closed unchanged from the issue price on their Hong Kong trading debut on August 25, but they were up 8% a week after listing. The stock continued to rise and closed at HK$230 on December 30, 46% above the issue price.

A 15% greenshoe was partially (13.3%) exercised, lifting the deal size to HK$18.4bn.

China Tourism’s stellar performance drew investors’ attention back to the city’s IPO market and encouraged more sizable listings. Chinese property management company Onewo, electric vehicle maker Zhejiang Leapmotor Technology and EV battery maker CALB all wrapped up Hong Kong IPOs in September, raising a combined HK$22.1bn.

CICC and UBS were joint global coordinators and joint bookrunners with CCB International, Citic Securities and Haitong International.

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