IPOs surge amid recent weak debuts and speculation about 'IPO fatigue'
Updated: 2009-10-09 07:44
By Joey Kwok(HK Edition)
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HONG KONG: The recent fluctuation in new shares debuts has elicited mixed sentiments about new offerings in Hong Kong. While the market expects the city's initial public offering (IPO) boom to wane, trading debuts yesterday were all doing well against their offer price. Topping the list, Hunan's infant formula producer Ausnutria Dairy advanced 22.89 percent, or HK$0.95, at HK$5.1, while Shanghai-based industrial gas supplier Yingde Gases Group and Sichuan's iron ore miner China Vanadium Titano-Magnetite Mining jumped 10.42 percent and 3.08 percent, to close at HK$7.84 and HK$3.68, respectively.
"These shares have been priced lower than the previous ones on debut. Offer price is the key factor for a successful first day trading," said Linus Yip, strategist at First Shanghai Securities.
Despite the volatile IPO market, Yip noted that the current market capital is enough to support the latter trading debuts in October.
"Money is flowing into the Hong Kong market continuously. Part of this capital has been allocated to subscribe for the new shares," he said, adding that the capital inflow will bolster the performance of the coming new listings.
A flood of new shares has flowed into the bourse over the last month, after a year of inactivity amid the global financial crisis, which cooled demand for new shares.
The IPO boom, however, started to decelerate after Metallurgical Corporation of China fell 12 percent on its first day of trading in Hong Kong on September 24.
Nonetheless,the mainland construction company, which builds steel mills and helped construct Beijing Olympic stadium, has raised HK$18.23 billion in the new listing, making it the biggest IPO in Hong Kong for 18 months.
The poor first-day performance of China Metallurgical was followed by plunges of four other new shares below their offer prices in their subsequent trading debuts.
Analysts said that investors have already lost confidence in new shares and that the market's appetite for new listings is deteriorating.
President of BMI Funds Management Patrick Shum said investors have plenty of choices to choose from in the current stock market, while they may prefer purchasing shares of the existing listed companies instead of IPOs.
He said that IPOs will have a tough go of it "unless the listing companies cut their offer prices, otherwise it would be difficult to gather up investors' confidence again", while allowing that the new shares performance will depend very much on the stock market sentiment.
"Companies should grasp the opportune time for successful listings; they need to ensure that the market asset is adequate, the stock market is prosperous and the price-to-earnings ratio of the new shares is not too high," he advised.
Analysts also have suggested that the aggressive pricing of the new shares has been steering investors away from the IPO stocks.
The offer price of China Resources Cement, listed on October 6, was 25 times its forecast earnings in 2009. The pricing was much higher than that of two other mainland cement companies Anhui Conch Cement and Sinoma, which had offer prices 24.74 times and 22.03 times earnings respectively.
To spur investor appetite for new offerings, some companies opted for delayed trading debuts and a slash in IPO prices.
Powerlong Real Estate Holdings earlier said it will delay its debut date to October 14 from the previously planned October 9, while it will also price its IPO shares at HK$2.75 each, 17 percent below its indicative range of HK$3.3 to HK$4.9.
Palm oil producer Wilmar of Singapore, meanwhile, may also delay its $3 billion IPO in Hong Kong because of the volatile market conditions.
"It's better for the potential IPO candidates to delay debuts and wait for another boom to get listed," BMI's Shum said.
The sluggish market sentiment, however, did not whittle down companies' interest in getting listed on the Hong Kong bourse.
The world's largest aluminum producer Rusal has applied for a listing in Hong Kong, making it the first and only Russian company with shares trading in the city's bourse.
Moscow-based Rusal has planned to raise HK$101 billion this year in a Hong Kong IPO, which is around 10 percent of the company's stake. The fund will account for 60 percent of the entire capital raised in Hong Kong last year.
While investors remain very cautious theses days, one thing is quite certain: Rusal and other upcoming share issuers may need to offer their shares at lower prices, to attract subscribers and run successful IPOs.
(HK Edition 10/09/2009 page3)