It has been a good year for the China pessimists. Slowing growth, a troubled real estate sector and a mini stimulus all signal that China’s economy is coming under some pressure.
Add to that some of the recent scandals involving the managers in some of Chinese companies listed in Hong Kong, and it seems the bears are on top.
Understandably, some of this negativity about China is spilling over into the IPOs out in the Hong Kong market.
There are even firm-specific reasons to be cautious. When the real estate market is under so much pressure, why invest in commercial property giant Dalian Wanda? Investors looking at BAIC Motors may worry about exposure to the auto sector when consumer demand is cooling.
But to dismiss Chinese companies wholesale would be missing the point.
Chinese billionaire Wang Jianlin’s Dalian Wanda is not just any property firm – it is the largest commercial property company in China. It is a market leader in its sector and is best positioned to ride out the current turbulence and benefit from any market recovery and/or consolidation.
And this is reflected in the size. At more than $5bn, the trade is poised to be Hong Kong’s biggest listing since 2011, and its biggest ever from a real estate firm.
BAIC had its listing approved last Friday and will start gauging investor interest this week. It is looking for $1.5bn, and is raising the capital to invest in fixed assets, develop its passenger vehicle and sales network, promote its products, repay bank borrowings, and for working capital and general corporate purposes.
For investors needing a dose of confidence in BAIC, look no further than its link to Germany’s Daimler. The blue chip carmaker bought a 12% stake in BAIC in February 2013 to tap into the China story and in preparation for the IPO. With that Daimler became the first non-Chinese manufacturer to own shares in a Chinese original equipment manufacturer.
Alibaba, the Chinese e-commerce giant, also had to battle early scepticism before it went on to raise $25bn in a blockbuster IPO, the largest in history.
Meanwhile, CGN Power, the nuclear energy producer, is on track to price its $3.2bn IPO at the top end of the range when books closed on Tuesday. The deal is showing no signs of price sensitivity, and little wonder: 18 cornerstone investors had signed up for HK$10.32bn worth of shares, or just over 40% of the IPO, even before the deal launched. Institutional books were multiple times covered on day one of bookbuilding.
BAIC, CGN, and Dalian Wanda will turn around what has been a lacklustre fourth quarter for IPOs in Hong Kong, which has seen less than $800m in funds raised.
It could well be the case that these IPOs fall victim to a host of issues. China can, and will, surprise. But to judge them without first understanding their story would be premature.