Citic Securities formally started book building for its US$2 billion Hong Kong float on Friday. This is a marquee deal likely to generate a lot of interest. Investors have made a pile of money participating in IPOs of mainland financial institutions, and there is hope Citic can repeat that magic despite the challenging market conditions.
China Construction Bank's shares rose 180 per cent in the two years that followed its October 2005 listing and US$9.2 billion IPO in Hong Kong.
The record-setting (US$21.9 billion) initial public offering for Industrial and Commercial Bank of China in October 2006 turned around what was then moribund sentiment for new issues in Hong Kong, setting the scene for a sustained bull market for Hong Kong IPOs that was ultimately scuppered by the 2008-09 financial crisis.
ICBC and CCB would go on to become the world's top two banks by market capitalisation.
Can Citic, a pure investment bank rather than a universal institution, repeat ICBC's 2006 mini-miracle and likewise turn around an expiring Hong Kong IPO market? The early indications are positive: the full offer was covered ahead of its official launch, thanks to demand from anchor and cornerstone investors (of which there are six).
As always, pricing for the Citic deal will be the ultimate determinant of demand. The price for the A-shares provides an obvious reference point, and Citic has indicated a range from a discount of 13 per cent to a premium of 3 per cent. However, investors may also keep in mind the IPO record set by mainland financial stocks and the somewhat sexy marketing story in which Citic vies to become both a global securities powerhouse and China's leading investment bank.