Citic I.P.O. bombs in hostile waters

PUBLISHED : Friday, 07 October, 2011, 12:00am
UPDATED : Friday, 07 October, 2011, 12:00am


Citic Securities yesterday became the latest new listing to make an unimpressive debut in Hong Kong, where initial public offerings this year have largely slipped under water.

Citic Securities is the fourth-largest public float in Hong Kong this year, raising US$1.7 billion. But the Shanghai-traded mainland brokerage tumbled as much as 4.5 per cent during trading, ending yesterday flat on its trading debut at HK$13.30, the same as its offer price.

The IPO was poorly received by increasingly jittery investors concerned about deteriorating global economic conditions.

Despite making just 5 per cent of the shares available to the public, the retail portion of the IPO was undersubscribed. Typically an IPO allocates about 90 per cent of the shares to international investors, leaving 10 per cent to the public.

Local brokers said IPOs had lost their appeal of late due to their poor performances and weak appetite for equities. Hong Kong has been the top destination for IPOs over the past two years.

So far this year there have been 52 IPOs in Hong Kong, collecting a total of US$24.37 billion in proceeds, according to statistics provided by Dealogic. Of those new listings, most are under water and investors in new shares have been left nursing millions in losses.

The stock prices of the top five IPOs in Hong Kong this year - including commodities trading giant Glencore International and Italian fashion house Prada - have lost between 15.19 per cent and 45.8 per cent. High volatility and a falling market have made it difficult to raise capital.

A total of nine planned listings were pulled this year in Hong Kong, worth a total of US$4.96 billion.

These listings include Australian billionaire Clive Palmer's mining project Resourcehouse, which aimed to raise US$3.46 billion.

Shanghai construction equipment maker Sany Heavy Industry also called off plans for a Hong Kong IPO as a result of weak market conditions.

There has also been a steep decline in global IPO activity in the third quarter of this year, making it the least active quarter for IPOs since the third quarter of 2009, according to US-based IPO adviser Renaissance Capital.

The Hang Seng Index is already in bear market territory, losing a total of 23.29 per cent so far this year and a total of 23.58 per cent since August.

Although there are a number of definitions of a bear market, a downturn of 20 per cent or more in market indices over at least a two-month period is considered an entry into a bear market.

The Hong Kong benchmark yesterday recovered some lost ground, rising 5.67 per cent, or 922.01 points, to close at 17,172.28.

'Although there's a rebound, there's a lot of uncertainty ahead,' said Prudential Brokerage associate director Alvin Cheung. 'There are many questions on the euro-zone debt woes that remained unanswered.'

Sentiment remained bearish on Hong Kong stocks and the local broker community has been lobbying the government to ban short selling.

There are concerns the growing number of short positions on Hong Kong shares will hurt the market.

Short sellers usually borrow shares, sell them, and then buy them back at a lower price, repaying the loan and pocketing the price difference.

The practice has been blamed for roiling markets.

source: Dealogic and SCMP