Sauce maker Honworld gets hot reception on market listing

Owner of Lao Heng He brand chalks up gain of 15.7 per cent on debut as investors continue to pounce on small-caps instead of blue chips

PUBLISHED : Wednesday, 29 January, 2014, 5:02am
UPDATED : Wednesday, 29 January, 2014, 5:02am

Shares in Honworld, which makes and sells cooking wine, soy sauce and vinegar under the Lao Heng He brand, rose sharply on their debut yesterday, extending a buying spree in smaller capitalised stocks.

Honworld shot up as much as 24.6 per cent before finishing the day with a gain of 15.7 per cent at HK$8.27.

The mainland company's shares were priced at HK$7.15 in its initial public offering to raise HK$893.75 million.

Honworld joins a strong run in small-caps seen since the listing of Magnum Entertainment, a nightclub and disco operator.

Retail investors are increasingly focusing on nimble health care, internet and consumer stocks as blue chips find themselves under selling pressure. All mainland financial stocks, including those of banks, insurers and property developers, in the benchmark Hang Seng Index have been under the weather of late.

Honworld's performance was in sharp contrast to the declining trend of the city's stock market, which fell yesterday for the fourth consecutive session amid worries over the health of the mainland's financial sector.

Based in Huzhou, Zhejiang province, the company had priced its offering of 125 million shares at the top end of the indicative range after it received cornerstone investment of US$10 million from China Taiping Insurance.

The retail tranche of the offering was more than 1,000 times oversubscribed.

Most of the buzz in the stock market yesterday surrounded the fate of maturing trust products on the mainland and whether they could lead to a spate of defaults in the 10 trillion yuan (HK$12.8 trillion) trust industry.

China Credit Trust, one of the largest "shadow bank" institutions, said it had restructured a three billion yuan high-yield product in a last-minute deal with its 700 high-net-worth investors. The arrangement did little to pacify the market.

"The trust market faces the biggest default risk because credit quality here is among the lowest," analysts at Bank of America Merrill Lynch said in a research note. "Any local government financing vehicle trust default may immediately trigger significant volatility. Second and third quarters will be another peak trust maturing period."

Investors, who prefer small-scale delinquency to a credit crisis, are closely monitoring the asset condition across the border after the country's leaders pledged to tackle mounting local government debt that will be maturing.

Concerns over the credit-fuelled mainland economy have persisted since the four trillion yuan stimulus in 2008 in the wake of the 2008-09 global financial crisis.

Analysts at Nomura said they expected a default would be avoided in this particular case as several parties, including China Credit Trust's majority shareholder, PICC, a mainland insurance conglomerate, might help add to the collateral, find new funding and extend repayment terms.

Despite the temporary relief after the deal with investors, Zhang Zhiwei, an economist at Nomura, said he believed more bad news might be on the way in the shadow banking sector as well as in the real economy.