IPOs make comeback but newly listed firms struggle

PUBLISHED : Wednesday, 22 December, 2010, 12:00am
UPDATED : Wednesday, 22 December, 2010, 12:00am

Initial public offerings made a strong comeback this year in Hong Kong but the shares of some newly listed companies performed poorly.

Up to yesterday, 34 of the 85 companies that listed on the Hong Kong stock exchange this year were trading below their offer prices. This means the shares of four out of 10 companies that went public were worth less than when they began trading.

Monetary tightening on the mainland to curb inflation has hurt market sentiment, sending the Hang Seng Index down 3.71 per cent last month. As a result, a few listing candidates shelved flotation plans or reduced the size of their offerings.

Wind-power company Huaneng Renewables withdrew a planned IPO in which it sought to raise up to US$1.3 billion, citing the uncertain outlook of the Hong Kong stock market. Bluestar Adisseo Nutrition Group, an animal-nutrition company controlled by state-owned China National Chemical, also decided not to proceed with its planned US$1.56 billion share offer late last month.

China Datang Corp Renewable Power, the mainland's second-largest power producer, scaled back its offering size, blaming market volatility for the decision.

Companies from the mainland continued to dominate Hong Kong's initial public offerings and the global IPO market this year. Of the companies that went public this year, 68, or 80 per cent, were from the mainland.

Mainland companies will continue to be the main driver for Hong Kong's IPO market, as more of them are expected to tap the equity market for capital next year, according to consulting firm Ernst & Young.

Proceeds from IPOs around the world are expected to exceed US$300 billion, making 2010 a record-breaking year for global IPOs in terms of capital raised, surpassing US$295 billion in 2007.

Chinese companies have benefited from the revival of IPOs; they raised more than 46 per cent of the money brought in globally by IPOs this year. In the first 11 months of this year, Chinese companies raised US$117.9 billion in 442 deals, up 170 per cent from the same period last year.

Ernst & Young predicts a more muted IPO market in the coming year in terms of the amount of capital raised because there will be fewer deals as sizeable as the state-owned Agricultural Bank of China's HK$93.5 billion H-share offering and pan-Asia insurer AIA's HK$159 billion flotation this year.

Ernst & Young expects a total of HK$400 billion will be raised next year in Hong Kong, compared with its estimate for this year of HK$450 billion.

The firm said Hong Kong investors could expect to see more offerings from the financial, retail, industrial and resources sectors next year.

But life will still be tough for mainland property developers that seek to raise cash in Hong Kong, Ernst & Young said, as the outlook for the property sector remained uncertain.

The performances of Chinese companies newly listed in the US, another market that is popular with mainland firms seeking to raise funds, have also been weak, with 17 companies out of 38 that went public this year trading below their offer prices.

But US investors are unlikely to be deterred, according to Ernst & Young, and they are still keen on piling their cash into Chinese companies in the technology, media, telecommunications, clean-technology and health-care sectors.

Record year

Globally, IPOs are expected to raise more than US$300 billion. Of the total, Chinese companies will account for: 46%