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A setback for China’s Hong Kong listings hopefuls

There is rarely much middle ground between deluge and drought in Hong Kong's IPO market, which is powered by a powerful but fickle wall of retail money. The failure of several high-profile issues has started to claim victims. With mainland China's increasing reliance on Hong Kong to absorb issues from its frantic restructuring efforts, a market closure could have a serious impact.


HONG KONG'S INITIAL public offering market has always been idiosyncratic. And with massive liquidity chasing the local market since the economy turned smartly from its Sars-induced funk in the first half of 2003, the heat behind demand for Hong Kong new issues, particularly China plays, turned from lukewarm to white hot.

In the first quarter of this year, new records were set for subscription levels for retail tranches, which commonly hit several hundred times the amount offered. In some offerings, many of the more than 200 local retail brokers, who make a good living providing significant margin financing to retail punters looking to stag the next hot deal, drew down their facilities with local banks to their limits.

Dealogic data indicate that 42 IPOs in 2003 raised just US$1.04 billion. In the first quarter of 2004, by comparison, 15 IPOs netted US$3.06 billion. It's an impressive performance, but not one that is likely to be sustained, since several questionable offerings in Hong Kong's frenzied market for new issues have queered the pitch for future issuers. Amid lacklustre demand for China new issues, the back-draught from the IPO flame-out has already singed several debutants and the list of China IPO casualties continues to grow.

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