For most major Chinese corporates, selling shares in Hong Kong used to be a doddle. Not any more. WH Group’s decision this week to postpone its listing is just the latest in a long line of badly planned, overmanned, or poorly priced stock sales to emerge from the mainland.
WH Group’s failure to convince investors that its stock was worth a punt was galling for the world’s largest pork producer, which only targeted a Hong Kong share sale in order to trim its debts. Demand for its stock stalled even though WH Group cut its offer size by a third.
Hong Kong’s primary equity market is hardly struggling for deals, although activity is far off the heights of 2007 and 2010, and confidence was hit by Alibaba Group’s decision to pursue a New York stock listing. Initial public offering (IPO) issuance in the first quarter hit $5.9bn, spread across 15 listings, according to data from Dealogic, putting volumes this year to come in just shy of last year’s middling figures.
What is hurting the reputation both of mainland issuers, and the Hong Kong Stock Exchange (HKSE) that hosts their stock sales, is the patchy quality of IPO strategy, and poor after-market performance.
Since October, a quartet of mid-sized Chinese lenders, including Harbin Bank and China Everbright Bank, have completed stock sales in the former British colony, raising a combined $6.3bn. The shares of all four are now trading below their listing price.
WHoops
Bankers fret that mainland corporates issuing shares in Hong Kong hire too many underwriters — WH Group’s aborted sale had 29 — all of which get in each other’s way.
“We were all approaching the same fund managers to sell them shares,” says a Hong Kong-born equity capital markets banker involved in the sale. “I’d ring a fund manager up and he’d tell me to get lost as he’d had a dozen calls from other underwriters that morning. All we did on that sale was to fight with each other a lot.”
Investors also complain about valuations. Long gone are the days when Hong Kong IPOs were guaranteed to spike on day one. Now, as with the recent spree of stock sales by mainland lenders, sales are more likely to sink on debut.
“Valuations aren’t what they used to be,” said a leading Hong Kong-based origination banker. “Investor confidence in IPOs is very weak. Companies want high valuations, and won’t listen to our warnings when we say they’re being realistic. The Hong Kong IPO market is broken, and I don’t know what will fix it.”