Asian equities: Is the IPO train running out of steam?


Chris Leahy
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As bankers work feverishly to complete mandated China and Hong Kong IPOs before the final window shuts ahead of the Christmas break, there are hints of investor indigestion.

With the Hong Kong market flagging in the current quarter, a lacklustre initial trading performance from the world’s largest IPO this year, the $8 billion issue from China Construction Bank, did not help sentiment. The stock closed flat on the first day of dealings after strenuous efforts by underwriters to keep the price above the offering price.


Several recent IPO debutants have also experienced bumpy starts to trading on the listing venue of choice for China companies, including Kasen International Holdings, China Yurun Food Group and Guangdong Nan Yue Logistics. Mainland listing candidates Shenzhou International Group and China Infrastructure Machinery Holdings have just relaunched IPOs in Hong Kong after being forced to pull the initial issues because of valuation concerns.

All of this paints a rather gloomy backdrop for the latest big issues in the Hong Kong market. China’s third-largest automobile manufacturer, Dongfeng Motor Corp, is in the throes of marketing its IPO with an unusually wide indicative valuation range to raise between $450 million and $650 million, a sure sign of nervous underwriters.

Meanwhile, the ill-fated Link real estate investment trust is hoping that its deal will get away second time around. Almost exactly one year ago, the $2.7 billion IPO of the Hong Kong government’s holdings in car parks and shopping centres was scrapped at the last minute after a pensioner challenged the legality of the sale.

With legal wrinkles apparently ironed out, the government is keen to proceed with the Reit deal, part of its much-vaunted privatization plans. Market conditions are, however, very different to those last year when the IPO attracted a feverish response from both institutions and Hong Kong’s famously exuberant retail punters. Recent interest rate increases mean that the yield premium offered by the Link deal over current bank deposit rates has halved. And Link is not the only Reit on offer to Hong Kong investors: local property developer Cheung Kong (Holdings) is due to launch Prosperity Reit, its third property investment vehicle, but first in Hong Kong (the previous two were issued in Singapore).

Soft markets

With so much new paper being issued into an increasingly soft market, issuers lined up to launch IPOs in the new year will be watching nervously over the next couple of months. Included in that list are three big banks: Bank of China, China Minsheng Bank and Industrial and Commercial Bank of China.