Strong Netcom listing a boon for future IPOs
Interest in debuts seen reigniting as players take advantage of low borrowing costs
A surprisingly strong trading debut by China Netcom Group Corp (Hong Kong) will boost sentiment for other listing hopefuls in the pipeline, especially in light of the low borrowing costs in the local market, some analysts say.
Netcom became the second mainland-related company in six weeks to finish more than 10 per cent higher on its first day of Hong Kong trading after China Power International jumped 16.6 per cent when it came to market on October 4, suggesting demand for mainland plays has rekindled - if only as a way to benefit from a potential yuan revaluation.
'It sets the tone because once you get such a good showing, people will become more confident to buy the newcomers,' Celestial Asia Securities research head Herbert Lau Chung-kwan said.
There was a lot of liquidity in the market, and with local money market rates being so low, the opportunity cost of investing in new companies was relatively cheap, said Andrew Look of UBS.
As long as those factors remained in place, good initial public offering performances would help focus the interest on future listings, he said, but stressed investors would still look at them on a case-by-case basis.
'Whether an IPO pops or dies ultimately depends on the price and the valuation,' he said.
Among companies in line to benefit from the pickup in sentiment are Air China, which is seeking to raise up to US$1 billion; Hong Kong's first real-estate investment trust, which is expected to raise up to $25 billion; and mainland telecommunications equipment maker ZTE Corp, which is seeking US$350 million.
Netcom, the mainland's second fixed-line operator, jumped as much as 13 per cent to a high of $9.50 shortly after opening yesterday and traded in a range of $9.30 to $9.35 for most of the morning. In the afternoon, more investors chose to take profits and the stock fell back to close at $9.25, or 10.11 per cent above the $8.40 IPO price.
This compared with a 14.16 per cent gain in its American depositary shares (ADS), which debuted in New York on Tuesday.
Traders said the absence of profit-hungry retail punters holding the ADS would have meant less selling pressure, but the thinner liquidity in the United States stock would also have helped exaggerate the gains there.
The deal leaves Goldman Sachs comfortably ahead in the Asian equity offering league tables for the year. Dealogic ranks the firm No1 with US$7.24 billion worth of equity offerings in Asia excluding Japan for the year to date.
Fang Fenglei, a leading mainland investment banker, said investors were attracted to Netcom's low valuation and growth prospects. 'Under the leadership of its chairman Zhang Chunjiang, China Netcom is focused on developing the high-margin and high-potential businesses such as broadband.'
Mr Fang, the chairman of a joint-venture investment bank between himself and Goldman, said Mr Zhang was seeking a strategic alliance with PCCW to position the firm to compete with China Telecom and other major mainland players.
According to brokers, Goldman and Citigroup, which sponsored the listing together with China International Capital Corp, supported the stock at about $9.30, but some said the banks could have been buying on behalf of clients.
Institutional investors were expected to hold on for the longer term to benefit from Netcom's promise to pay 30 to 40 per cent of its adjusted net profit as dividends in the next two years.
Additional reporting by HuiYuk-min
