IPO pricing seen to fall next year as gloom persists
Companies launching initial public offerings (IPOs) next year are expected to price them lower as uncertainties about Europe's debt crisis and America's economic decline continue to weigh on global stock markets.
Edward Au, partner in charge of national public offerings at audit firm Deloitte, said the shares of firms seeking listings early next year would be valued at more modest price-to-earning ratios - in the low teens or even single digits - as firms were facing up to the current market gloom. (Price-to-earnings ratio is a measure of the price paid for a share relative to the annual net profit earned.)
Shares of firms that listed this year were hit by the slump in global markets.
For instance, nine of the 10 largest listings in Hong Kong have been trading below their offering price.
Australian miner Glencore, the biggest IPO this year, fell more than 28 per cent below its offering price yesterday.
Italian luxury fashion brand Prada, the second-largest IPO this year, also closed 12.4 per cent below its offering price. Shanghai Pharmaceuticals, the third-largest, is the worst performer; its share price has fallen by nearly half since its debut.
Sun Art Retail Group, the mainland's largest hypermarket operator, is the only firm among the 10 largest IPOs that did not fall below its listing price; it was trading more than a third above it.
Indeed, this year marks the largest number of shelved listings in a decade, according to Deloitte, which reckons that as many as 40 listings were aborted.
These included several mega deals, such as Haitong Securities' US$1.67 billion IPO, China Everbright Bank's US$1.9 billion IPO, and Sany Heavy Industry's US$3.3 billion IPO.
For firms that delayed their listings but finally followed through this year, most of their share offerings shrank significantly.
For example, aluminium producer China Hongqiao and mainland indoor sports brand Hosa International slashed their share offerings by more than half.
The average size of listings, excluding mega deals that raised more than US$1 billion, fell again this year to HK$1 billion, from HK$1.6 billion last year, according to Deloitte.
As a result, fewer IPO candidates will price their share offering at the lower end of their indicative range next year, according to Deloitte's Au. Forty-five per cent of new listings this year, including local jeweller Chow Tai Fook, were priced at the bottom of their indicative range.
Hong Kong remains the world's top IPO market this year.
However, the total value of deals fell 40 per cent to US$36 billion from US$67.9 billion last year, according to Dealogic.
New York, London, Shanghai and Shenzhen are the next largest IPO markets after Hong Kong's.
Au estimates that firms will raise HK$230 billion from listing in Hong Kong next year, down 15 per cent from the estimate of HK$271.4 billion for this year. Deloitte's rival Ernst and Young however expects IPO proceeds in Hong Kong to reach HK$250 billion next year, HK$10 billion less than for this year.
But both firms expect fewer deals to top the US$1 billion level next year, largely because the leading mainland banks and state-owned enterprises are already listed.
Wang Chang-hong, deputy head of corporate finance at CITIC Securities International, said mainland private firms remained eager to list in Hong Kong.
That's because it would boost their profiles and improve their credibility as a business counterparty.
And that would make it easier for them to borrow from the banks amid the mainland's restrictive credit environment.
As their listings would be considerably smaller, it would be harder to attract major investors, compared to international firms or state-owned enterprises, Wang said.
Brokers said the Hong Kong share market might favour blue chips, since they have already been discounted to attractive levels this year.
New stocks would need to have strong fundamentals and be sold at reasonable prices to entice investors, they said.
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The number of IPOs, worth US$25.4 billion, delayed or scrapped in the region this year, according to Dealogic
